President Donald Trump's administration is poised to significantly impact the U.S. housing market through proposed tariffs on imports, which have raised concerns among builders and prospective homebuyers. With mounting pressures from high mortgage interest rates, low supply, and elevated home prices, the addition of tariffs promises to complicate the challenges homebuyers face.
On his first day back from campaigning as president, Trump announced 25 percent tariffs on goods imported from Canada and Mexico, as well as 10 percent on items from China. These changes are not just administrative—they translate directly to cost increases for key building materials like softwood lumber and gypsum, which are primarily sourced from the very countries targeted by the new tariffs. The effect is palpable: construction costs are expected to rise sharply, driving home prices even higher. According to Carl Harris, chairman of the National Association of Home Builders (NAHB), "Tariffs on lumber and other building materials increase the cost of construction and discourage new development, and consumers end up paying for the tariffs in the form of higher home prices." This sentiment resonates throughout the industry as builders brace for economic turbulence.
To put it simply, about 30% of the softwood lumber consumed in the U.S. originates from Canada, and as the NAHB points out, over 70% of gypsum is imported from Mexico. When additional tariffs are levied, builders face steeper costs; for example, a $200,000 purchase of Canadian lumber could incur an extra $50,000 due to these tariffs. Consequently, home prices are set to increase, exacerbated by the fact the housing market has already seen home prices rise over 40% since the pandemic began. The inflationary pressure is evident, with home prices reportedly up 3.8% from November last year, according to the S&P Corelogic Case-Shiller national home price index.
The question many are asking now is: Can homebuyers endure even higher costs? Jaret Seiberg, housing policy analyst for TD Cowen Washington Research Group, remarked, "We believe this could make worse the affordability crisis for first-time buyers." This reality becomes even more complicated when considering another aspect of Trump's plan—his focus on immigration and labor force reform. Approximately 30% of the construction labor market consists of immigrants, many of whom are undocumented. The potential for mass deportations raises alarms among industry experts. Bruce McNeilage, CEO of Nashville-based Kinloch Partners, encapsulated the fears of many with his blunt statement: "You can run them all out of the country, but who's going to build houses?"
With labor shortages already looming, homebuilder Sheryl Palmer of Taylor Morrison expressed her hopefulness for short-lived tariffs, stating, "Even with tighter margins, we will all be affected—which, in turn, can impact consumers and their ability to purchase homes in the short-term." The stakes are high as we approach the spring market traditionally known for its momentum.
Another economic concern arises from the potential reaction of mortgage rates. Experts like Chen Zhao of Redfin warn higher tariffs are inflationary and likely to lead to longer-duration high mortgage rates—an unwelcome reality for buyers hoping for lower rates to ease their financial burden. "Higher tariffs are inflationary and likely to lead to higher mortgage rates for longer," Zhao stated recently, which could compound existing affordability issues.
Despite the forecast for challenging times, not all news is entirely bleak. There are glimmers of hope as lawmakers and housing advocates push for government intervention. Suggestions include tax credit programs aimed at easing entry for first-time buyers and broader strategies to stimulate affordable housing construction. With pressure mounting, there is optimism about potential changes needing to emerge from Congress.
Given the convergence of tariffs, inflation, and immigration policies, the U.S. housing market stands at a crossroads. The looming tariffs, aimed at creating economic shifts, threaten to push already-high prices even higher. To what extent these impacts will ripple through the housing market remains uncertain, but as builders, consumers, and policymakers navigate this turbulent climate, vigilance will be necessary. Economists await specific developments and accompanying measures to address these multifaceted challenges, ensuring adequate supply and affordability remain central to the housing narrative.