Prime Highlights:
A 25% tariff on key building materials from Canada and Mexico, including softwood lumber and gypsum, is expected to increase construction costs and drive up home prices.
Home prices have already surged over 40% since the pandemic, and these new tariffs could further strain affordability, particularly for first-time buyers.
Key Background:
The U.S. housing market, already struggling under high mortgage rates, a limited inventory of homes for sale, and soaring prices, faces new challenges with the introduction of tariffs on critical building materials. The 25% tariffs imposed by President Donald Trump on goods from Canada and Mexico, including softwood lumber and gypsum, are expected to escalate construction costs, making homes even less affordable for potential buyers.
Around 30% of the softwood lumber used in U.S. construction is imported from Canada, while gypsum comes from Mexico. These materials are essential in homebuilding, and the new tariffs will increase their cost, potentially raising home prices even further. Though the tariff on Mexican goods was delayed for a month, it remains a looming concern for the industry. According to Carl Harris, chairman of the National Association of Home Builders (NAHB), such tariffs deter new development, forcing consumers to bear the brunt of the increased costs in the form of higher home prices.
Home prices have already surged more than 40% since the pandemic began, with prices still rising at 3.8% year-over-year as of November 2024. The combination of these rising costs and the challenges in securing affordable homes is exacerbating the affordability crisis for first-time buyers, according to housing analysts. The NAHB has called for exemptions for building materials from these tariffs, urging the government to prioritize expanding housing supply, a promise made by the Trump administration on its first day in office.
In addition to rising material costs, a labor shortage is worsening due to the Trump administration’s policies on immigration, particularly the mass deportation of undocumented workers. With approximately 30% of construction workers being immigrants, this shortage further strains the industry’s ability to meet demand. The potential for increased costs across the housing market, compounded by higher tariffs and a slowing economy, could dramatically impact both the new home construction market and the existing market, leaving many potential buyers sidelined.
