Initiating a trade war, President Donald Trump’s 25% tariffs on Mexican and Canadian imports went into effect earlier this week on Tuesday, March 4.
Just two days after implementing the tariffs, Trump announced that, up until April 2, Mexico will not be required to pay tariffs on anything that falls under the USMCA Agreement.
Directly impacting the housing market, there is a 25% tariff on imported aluminum, copper, lumber and steel. In 2023, the National Association of Home Builders (NAHB) estimated that $13 billion—or 7%—of all goods used in new residential construction were imported from outside the U.S.
Softwood lumber and gypsum are largely sourced from Canada and Mexico, respectively.
According to NAHB, $5.8 billion—nearly 70% of the $8.5 billion—worth of sawmill and wood products imported in 2023 came from Canada. Many of these imports are already subject to a 14.5% antidumping and countervailing duties (AD/CVD) tariff. On the southern border, 71% of the $456 million worth of the lime and gypsum—used as plastering materials—imported in 2023 came from Mexico.
To “protect America’s critical steel and aluminum industries, which have been harmed by unfair trade practices and global excess capacity,” a sweeping 25% global tariff on aluminum and steel will go into effect on March 12.
In a letter to the president written January 31, NAHB Chairman Carl L. Harris urged Trump to reconsider the tariffs, citing the severe housing shortage and affordability crisis.
“While homebuilding is inherently domestic, builders rely on components produced abroad, with Canada and Mexico representing nearly 25% of building materials imports. Imposing additional tariffs on these imports will lead to higher material costs, which will ultimately be passed on to homebuyers in the form of increased housing prices,” he wrote. “We respectfully ask that you consider the effects of tariffs on Americans struggling to afford housing, and that you exempt critical construction materials from such actions.
The new tariffs could increase builder costs anywhere from $7,500 to $10,000 per home, according to NAHB Chief Economist Rob Dietz.
On lumber alone, the increased costs from the tariffs are expected to total $4,900 per home, on average, according to Leading Builders of America.
During his address to Congress on Tuesday, Trump referred to these effects on Americans as “a little disturbance.”
“There will be a little disturbance, but we’re okay with that,” he said. “It won’t be much.”
Noting the “unfair” and “tremendously higher” tariffs from other countries, Trump announced that reciprocal tariffs will go into effect on April 2—joking that due to his superstition and being accused of an April Fool’s joke, that one day will “cost us a lot of money.”
“Whatever they tariff us, other countries, we will tariff them. Whatever they tax us, we will tax them,” he said. “If they do non-monetary tariffs to keep us out of their market, then we will do non-monetary barriers to keep them out of our market.”
The specifics remain in flux, however, as the administration offered some last minute exceptions for automakers this week, while Canadian Prime Minister Justin Trudeau also threatened to leave retaliatory tariffs intact rather than “meeting in the middle” to reduce escalation.
Housing breakdown
To get a deeper perspective on how these tariffs will impact the industry, RISMedia spoke with housing economists, who talked about the effects on consumers and builders.
Addressing the uncertainty and offering his perspective on the long- and short-term impacts of tariffs, Ken Johnson—a real estate economist and the Christie Kirkland Walker real estate chair at the University of Mississippi—says that no matter how you spin it, the cost of tariffs on building materials is always prohibitive. The impact on unit production will also take a hit, he added.
If the tariffs are in place for a “significant period,” inputs into homebuilding—lumber, drywall, home appliances, etc.—will drive up the overall cost of new homes and multifamily housing, says Johnson.
“In turn, this will only exacerbate our present problem with unaffordable housing. Thus, from an affordable housing perspective, tariffs can not help us solve this pressing issue,” Johnson says.
If tariffs are only in place for a short time or “avoided at the twelfth hour,” Johnson still expects “some non-trivial issues with housing affordability.”
“Human beings, by nature, hate uncertainty and on-again/off-again tariffs can create a significant level of uncertainty,” he says. “This uncertainty can easily lead to uncertain home and multifamily builders delaying projects at a time when we need to be building as many units as possible.”
Also highlighting the environment of uncertainty brought on by tariffs, Danielle Hale, chief economist at Realtor.com®, says builders will likely try to build some cushion in as soon as they can.
“I think they’re going to try to scenario plan for all different scenarios. The question is whether they’ll actually be able to pass those costs onto consumers,” she said.
Regarding domestic products, Hale said that U.S. production is not enough to meet builders’ needs.
“That’s why lumber is imported. Could that domestic industry grow? Yes, and it probably will. Will it grow enough to fill all of the gap? Probably not in the very short term.”
Offering advice to agents navigating the post-tariff sphere, Hale says that while it’s good to be aware of and to analyze the markets, what really matters is the local conditions.
“In some areas of the country—the South and the West—we see new construction a lot. In areas like the Midwest and the Northeast, building has already been pretty limited, so those areas might not see changes as directly as in the South and the West,” she said.
Offering his perspective from the northern border, Carl Gomez, CoStar Group Chief Economist & Head of Market Analytics for Canada, told RISMedia that this is “the No. 1 greatest uncertainty for the economy that the Canadian economy has ever had.”
Speaking directly on the U.S. housing market, he said tariffs will bring supply chain disruptions as builders switch to lower-cost providers. Recalling the effects of the pandemic, Gomez said when supply chains shut down then, there was a huge spike in inflation due to low supply.
The tariffs are “artificially going to reduce supply,” he said. “It’s going to disrupt the supply and cause prices to collapse, so it’s the same sort of general impact.”
Essentially, the “already unaffordable market will become less affordable, given how heavily the market relies on the tariffed goods.” There may be some short-term winners who will benefit from tariffs—like providers offering lower-cost goods—but ultimately, in the long-term, the cost will go up for everything, said Gomez.
