On Sat., Feb. 1, President Donald Trump imposed previously promised tariffs, implementing a 25% tax on imported goods from Mexico and most from Canada (energy related goods are only 10%) and an additional 10% tax on imported goods from China.
Tariffs could impact the housing market in a few crucial ways. For one, prices on homebuilding materials (such as Canadian lumber) would increase, making homebuilding and, in turn, homebuying more expensive as builders pass the burden of increased costs onto consumers. Moreover, the general increase on consumer goods prices would drive inflation higher, cutting into potential buyers’ pocketbooks and driving mortgage rates higher as the Federal Reserve holds back on cutting interest rates.
However, after meetings with Mexican President Claudia Sheinbaum and then Canadian Prime Minister Justin Trudeau on Mon., Feb. 3, Trump agreed to delay the tariffs on Mexico and Canada (which has threatened retaliatory tariffs on American goods) for at least one month. REALTOR.com® Chief Economist Danielle Hale called the pause a “welcome cooling off period” in public statement.
This seemingly quick turnaround echoes recent events with the Trump administration’s quickly recalled funding freeze. It is currently unclear if the tariffs will see a similar about face, as Trump’s actions echo the hard line on trade he took during his first administration and 2024 presidential campaign. Trump’s first term as president saw a renegotiation of the North American Free Trade Agreement (NAFTA) and a hawkish attitude to trade with China, which has been characterized as a trade war.
The sentiment of uncertainty—both in the tariffs’ implementation and their impact on the housing sector—echoed in a response to RISMedia by National Association of REALTORS® (NAR) Chief Economist Lawrence Yun. Yun said it is “difficult to predict all possible outcomes” but did not take an alarmist stance, instead weighing possible impacts of the tariffs.
“REALTORS® in border towns such as Brownsville and El Paso, Texas, have expressed the importance of trade to the local economies. For sure, the economic pains of an escalating trade war will be more intense in Mexico and Canada, but less so in the U.S., where the unemployment rate is already quite low,” said Yun. “Tariffs, such as on Canadian lumber, would be mildly inflationary. That would make mortgage rates a bit higher. At the same time, the general deregulatory spirit to come out of Washington, D.C., could lessen inflationary pressures and, therefore, would lower mortgage rates. Can lumber yards in Oregon and Maine ramp up quickly?”
Dr. Lisa Sturtevant, chief economist of Bright MLS, noted in an interview with RISMedia (shortly prior to the tariffs’ official implementation) that higher prices on Chinese-imported consumer goods could impact homebuyers and homeowners as well because “so many consumer appliances that go into homes come from China.”
Carl Harris, chairman of the National Association of Home Builders (NAHB), sent a letter to the president on Fri., Jan. 31, asking that building materials be exempted from the then-proposed tariffs. Following the tariffs implementation, Harris and the NAHB released a statement criticizing the action as counterproductive to housing affordability.
Citing Trump’s day-one executive order for federal departments to deliver housing price relief, Harris said 25% tariffs on Canadian and Mexican goods “will have the opposite effect.”
“More than 70% of the imports of two essential materials that homebuilders rely on—softwood lumber and gypsum (used for drywall)—come from Canada and Mexico, respectively,” said Harris in the release. “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.”
Following the delay of the tariffs, Harris and the NAHB released a subsequent statement commending the decision, saying it will “avoid additional strain on a housing market already facing affordability challenges.”
“Stability and certainty are essential for American businesses, consumers, and the strength of our economy. We urge all parties to remain committed to productive dialogue to prevent new tariffs on construction materials critical to housing our nation,” said Harris.
Sturtevant noted that consumers might have to switch to goods from alternative sources should the tariffs go through, but doing so would be difficult for homebuilders.
“Builders have a pretty long lead on supplies. They’re working with suppliers with global suppliers over business cycles, and so it’s not easy to just shift,” says Sturtevant. “And then frankly, there’s just some materials that are impossible or hard to get domestically, at least at any sort of comparable price. And so I don’t think it would be reasonable to think that builders could quickly pivot and find sources for lumber to replace the supply that they’ve been receiving from Canada.”
For Sturtevant, the “big risk” associated with the tariffs is reversing progress on inflation; were that to drive mortgage rates higher and hold the Fed back from cutting interest rates, that would result in “the environment that prospective buyers and sellers really weren’t hoping for in 2025.”
Asked if there is any potential upside for consumers or the housing industry, Sturtevant answered: “I’m hard-pressed to come up with a strong economic rationale that tariffs will benefit the U.S. consumer and the U.S. economy in the short term for sure. By short term I mean within this administration’s four-year term. I can’t see where the upside comes from for the American consumer with these tariff policies.”
Tariffs are generally considered a “regressive tax,” meaning the brunt of the payment burden falls upon those with less income/wealth. Sturtevant says this could further bifurcate the housing market or disadvantage prospective first-time homebuyers who are less wealthy than existing homeowners.
“We’re already set up to see a tale of two housing markets or a tale of two economies even, where the higher-income folks and folks who are existing homeowners right now, they’re going to be in much better positions than those who are lower income or moderate income or who are trying to buy their first home,” says Sturtevant.
“(Moderate-income households) will be disproportionately impacted by tariffs on consumer goods, which will make it harder for them to get into the housing market, which I think really exacerbates the divide between the housing haves and the housing have-nots when it comes to housing wealth,” she continues.
While Sturtevant says it is “more likely than not” that tariffs will be implemented and drive inflation up during 2025, she adds that potential backlash from the electorate adds to the overall uncertainty.
“President Trump ran and got a lot of support from a majority of Americans, and one of the things he ran on was, ‘I’m going to bring inflation down.’ And everything we’ve heard about his policy suggests that they will be inflationary,” Sturtevant explains. “So what happens when we get a year into this? And if as we are sort of spelling out here, if prices are still rising, what will be the reaction?”
