Tariffs and a pause on rate cuts isn’t doing any favors for homebuilder confidence. The National Association of Home Builders (NAHB) repeated the falling sentiment in the sector. However, that leaves the door open for potential plays in leveraged/inverse exchange-traded funds (ETFs).
With a new presidential administration in the early stages of its White House occupancy, uncertainty is flourishing. This is especially the case when it comes to tariffs and their effect on the real estate sector.
“While builders hold out hope for pro-development policies, particularly for regulatory reform, policy uncertainty and cost factors created a reset for 2025 expectations in the most recent HMI,” said NAHB Chairman Carl Harris, who builds custom homes in Wichita, Kan. “Uncertainty on the tariff front helped push builders’ expectations for future sales volume down to the lowest level since December 2023. Incentive use may also be weakening as a sales strategy as elevated interest rates reduce the pool of eligible home buyers."
The rising costs of materials was already felt amid inflation. Tariffs can only exacerbate that situation, making it more difficult for home builders to justify continued activity.
“With 32% of appliances and 30% of softwood lumber coming from international trade, uncertainty over the scale and scope of tariffs has builders further concerned about costs,” said NAHB Chief Economist Robert Dietz. “Reflecting this outlook, builder responses collected prior to a pause for the proposed tariffs on goods from Canada and Mexico yielded a lower HMI reading of 38, while those collected after the announced one-month pause produced a score of 44. Addressing the elevated pace of shelter inflation requires bending the housing cost curve to enable adding more attainable housing.”
Building Bulls
Given the downtrodden sentiment, traders may want to keep an eye on the Direxion Daily Homebuilders and Supplies Bull 3X Shares (NAIL ). Interest rate policy could provide potential tailwinds for the homebuilding sector. If the Fed resumes their rate cuts, NAIL could move higher. In the meantime, traders could use the recent weakness as an entry point to build a bullish position.
NAIL seeks daily investment results of 300% of the daily performance of the Dow Jones U.S. Select Home Construction Index. The index measures U.S. companies in the home construction sector that provide a wide range of products and services related to homebuilding. These include home construction and producers, sellers, and suppliers of building materials, furnishings, and fixtures.
A Bearish Play
NAIL might exhibit weakness in the interim. Traders can opt for an alternate play to profit from bearishness in the real estate sector. That play is available with the Direxion Daily Real Estate Bear 3X Shares (DRV ).
DRV seeks daily investment results equaling to 300% of the inverse performance of the Real Estate Select Sector Index. It gives traders broad-based exposure as opposed to single stocks, where concentration risk is magnified.
The Real Estate Select Sector Index (IXRETR) is provided by S&P Dow Jones Indices. This includes securities of companies from industries such as real estate management, real estate development, and real estate investment trusts (REITs), excluding mortgage REITs.
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