NEW YORK, Feb 25 - Shares tied to the U.S. housing sector dropped on Wednesday after downbeat remarks from two of the country’s largest home improvement retailers underlined ongoing headwinds in the market.
Lowe’s, a company with an approximate market capitalization of nearly $150 billion, fell 5.6% after forecasting full-year sales and earnings below Wall Street estimates. The company’s chief executive said consumer confidence remains "subdued given inflationary pressures and overall economic uncertainty," adding that "a persistent lock-in effect remains in place, keeping housing turnover and new home starts under pressure." Lowe’s also warned that improvement in housing and home improvement markets will be gradual.
The retailer’s cautious outlook helped push several housing-related stocks to among the largest percentage decliners within the S&P 500, diverging from the broader index which rose 0.8% on the day.
Major homebuilders experienced notable declines. Shares of Lennar finished 4.9% lower, PulteGroup dropped 4.5% and D.R. Horton lost 4%. The S&P 1500 Homebuilding index fell 3.7% to a three-week low, while the PHLX housing sector index was down 3%.
Building materials supplier Builders FirstSource tumbled 6.4% as the weakness rippled beyond retailers and homebuilders to firms that supply construction inputs.
President Donald Trump reiterated in his State of the Union address late Tuesday his plans to limit the number of homes that major corporations can own. Jake Dollarhide, chief executive officer of Longbow Asset Management in Tulsa, Oklahoma, noted that the President’s comments might be expected to benefit homebuilders. He said, however, that the sector’s share price movements may reflect the broader dysfunction in the housing market.
"Interest rates are too high. People are stuck in their homes, a prisoner to their one-, two- or three-percent mortgage rates, and they’re not moving," Dollarhide said.
Market participants and corporate officers have described a lock-in effect that is restraining housing turnover. On Tuesday, Home Depot’s chief financial officer Richard McPhail characterized the U.S. housing picture as a "frozen housing environment" since 2023, with no meaningful improvement yet visible. Home Depot’s shares fell 2.3% on Wednesday after having risen about 2% on Tuesday.
Mortgage rates eased slightly in the most recent data, with the average 30-year fixed mortgage rate slipping 8 basis points to 6.09% as reported on Wednesday. Despite that modest move, loan demand for home purchases - a forward-looking indicator for housing activity - declined by 4.7%.
The combined effect of elevated borrowing costs, tight resale inventory and rising input prices for construction continues to pressure housing activity. Companies across the housing supply chain — from big-box home improvement retailers to builders and materials suppliers — reacted in trading to the more cautious near-term outlooks provided by industry executives.
Investors will be watching for further corporate commentary and data on mortgage activity and housing turnover for signs that the lock-in effect and other constraints are easing.