How Trump’s Tariffs Could Impact the U.S. Housing and Market
Danielle Davenport
Davenport Group | RE Portfolio Management Entitlement, Development, and Investment. Offering Land Acquisition & Use Consulting, Disposition. Site(s) Selection to Build Out to Asset Management.
The recent imposition of tariffs by former President Donald Trump—25% on imports from Canada and Mexico and 10% on Chinese goods—has raised significant concerns regarding its potential impact on the U.S. housing market. These tariffs specifically target key building materials, including lumber, steel, and aluminum, which are essential for residential and commercial construction. The National Association of Home Builders (NAHB) has highlighted that over 70% of softwood lumber used in U.S. construction is sourced from Canada, making this industry particularly vulnerable to price increases.
Rising Construction Costs
With tariffs driving up the cost of imported materials, homebuilders are expected to face significantly higher construction expenses. In turn, these costs are likely to be passed on to homebuyers, further exacerbating an already challenging housing affordability crisis. The housing market has been grappling with rising home prices due to supply chain disruptions from the COVID-19 pandemic, inflationary pressures, and increased demand. The additional burden of tariffs could further restrict the availability of affordable housing, particularly for first-time buyers.
According to industry experts, the cost of framing lumber had already surged in recent years due to supply chain constraints and high demand for new construction. The introduction of tariffs on Canadian lumber could result in price spikes similar to those seen during the peak of the pandemic, making it even more expensive to build new homes. Meanwhile, steel and aluminum—used in roofing, plumbing, and structural reinforcements—will also become costlier, affecting both residential and commercial development.
A slower rate of few home construction means fewer homes available for buyers, leading to increased competition and higher home prices.
Impact on Mortgage Rates and Housing Affordability
Economists warn that the inflationary effects of these tariffs could lead to higher mortgage rates, further diminishing housing affordability. As construction costs rise, lenders may adjust interest rates to account for increased risks, making it more expensive for buyers to finance home purchases. Higher borrowing costs could deter prospective homebuyers from entering the market, reducing overall demand and potentially leading to a slowdown in home sales.
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Moreover, rental markets could also be affected as fewer new housing developments are completed, increasing demand for existing rental properties. This could push rental prices higher, making it more difficult for lower-income families to find affordable housing options.
Challenges for the Real Estate Market, Especially Commercial Real Estate
The real estate market, particularly the commercial sector, is expected to face significant hurdles due to these tariffs. Rising construction costs and labor shortages will make it more expensive to develop new office buildings, retail spaces, and industrial facilities. As businesses look to expand or relocate, they may struggle with higher rental rates or delayed project completions.
For the commercial real estate sector, which is still recovering from pandemic-induced disruptions, these tariffs could slow new developments and renovations. Higher costs will make it less viable for companies to invest in new spaces, leading to prolonged vacancies and reduced returns for investors.
Additionally, retail and industrial real estate could experience further setbacks. Large retailers and e-commerce companies rely on warehouse and distribution center expansions, but higher construction costs could make these developments less attractive. At the same time, businesses looking to lease commercial spaces may face higher rent costs, potentially reducing demand and slowing economic growth in urban centers.
Overall, while the introduction of tariffs presents significant challenges, the real estate industry is no stranger to economic shifts. Developers, builders, and investors who adapt to these changing conditions—by exploring alternative materials, focusing on growing markets, and leveraging policy changes—will be well-positioned to navigate this evolving landscape.
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CFP?, Advisor, Educator, founder TechGirl Financial?
3 周I think tariffs are less of an issue on how we adapt, and US regulations are more likely to give us the potential to adapt quickly or not to building challenges. Tariffs make great headline news, but it's important to remember they are just a negotiating tactic. Most of them won't see daylight. However, regulations slow everything down. If we can't loosen up the regulatory environment, it will be very difficult to adapt any new building opportunities.