Tariffs Set to Shake Up the U.S. Housing Market
The cost of home construction in the U.S. is poised to surge as new tariffs on materials like lumber, drywall, and appliances take effect. With duties on imports from Canada, Mexico, and China, builders could see costs increase by $7,500 to $10,000 per home, pushing prices higher for buyers.
Rising Lumber Costs to Hit Homebuilders Hard
Lumber prices are a major concern. Nearly one-third of U.S. lumber comes from Canada, which is now subject to a 25% tariff, alongside existing duties of 14.5%. These hikes could add approximately $4,900 to the price of each new home. Domestic producers are likely to raise their prices in response, creating additional strain on the market.
Builders have already noticed price hikes. Western Spruce-Pine-Fir, a common framing material, has jumped 13% since tariffs were first announced. As supply dwindles and demand rises going into peak construction season, analysts expect further volatility in pricing.
Supply Chain Bottlenecks Could Slow Domestic Production
To counter rising costs, President Trump has signed an executive order to streamline regulatory processes and boost domestic lumber production. However, experts caution that scaling up is not as simple as flipping a switch. Constructing new sawmills and ramping up production could take up to three years due to limited equipment manufacturers and a shrinking labor force.
“You’re trying to rewire a 40-year supply chain overnight,” noted a leading industry analyst. “That’s incredibly difficult.”
Homebuyers Face Higher Prices Beyond Lumber
The tariffs extend beyond timber. Drywall, largely imported from countries like Spain, Mexico, and Canada, is vital for both residential and commercial construction. The U.S. is the world’s top importer, having spent $215 million on gypsum products in 2023.
China, a leader in home appliances, will also be affected, meaning higher costs on everything from refrigerators to HVAC systems. Builders now face a tough decision—pass costs onto consumers or scale back on materials, potentially leading to smaller homes.
Impact on the Broader Housing Market
As new homes become more expensive, buyers may turn to the existing home market, pushing those prices up as well. Meanwhile, major home renovation projects could take a hit, as higher material costs make remodeling less viable.
One silver lining? Mortgage rates have recently dipped, with the average 30-year fixed loan falling from 7.26% in January to 6.64%. However, will lower borrowing costs be enough to offset rising home prices due to tariffs?
The Road Ahead
The housing market is already contending with historic challenges. Signed contracts for existing homes dropped to record lows earlier this year, while sales of newly built homes slumped 10% in January alone, according to federal data.
With tariffs adding pressure to an already fragile market, homebuilders and buyers alike will need to navigate an evolving landscape. Will domestic production ramp up in time, or will housing affordability take another hit? The answer may unfold in the months ahead.
