Homebuilders Fall As Canadian Lumber Tariff To Impact Profitability

Shares of homebuilding companies including PulteGroup (PHM), Lennar Corporation (LEN), and Toll Brothers (TOL) are falling in the midst of a strong broader market rally new tariffs by the Trump administration on Canadian softwood lumber imports will raise costs.

SOFTWOOD LUMBER FROM CANADA: Monday, U.S. Secretary of Commerce Wilbur Ross announced the preliminary determination in the countervailing duty or CVD investigation of softwood lumber from Canada. Commerce preliminarily determined that exporters of softwood lumber from Canada received countervailable subsidies of 3.02% to 24.12%.The CVD law provides U.S. businesses and workers with an internationally accepted mechanism to seek relief from the injurious effects of unfairly subsidized imports into the United States. Unless the final determination is postponed, Commerce is currently scheduled to announce its final CVD determination on September 7, 2017. This final determination will be based on the verification of the information provided to the Department for the preliminary ruling, comments by the parties and further analysis. If Commerce makes an affirmative final determination of subsidization and the U.S. International Trade Commission makes an affirmative final injury determination, Commerce will issue a CVD order.

NAHB DENOUNCES DECISION: In response to the Trump administrations actions the chairman of the National Association of Home Builders, or NAHB, said, “NAHB is deeply disappointed in this short-sighted action by the U.S. Department of Commerce that will ultimately do nothing to resolve issues causing the U.S.-Canadian lumber trade dispute but will negatively harm American consumers and housing affordability.” According to the NAHB, 33% of the lumber used in the U.S. last year was imported. The bulk of the imported lumber — more than 95% — came from Canada.

PRICE ACTION: As U.S. equity markets move toward all-time highs, shares of homebuilders are lower, with PulteGroup down almost 4% to $22.22 per share, Lennar dropping 1.6% to $50.76 per share, D.R. Horton (DHI) lower by 1.69% to $32.49, Toll Brothers down 0.7% to $35.68, and Beazer Homes (BZH) declining 2% to $12.15.