The U.S. housing market is poised for significant shifts as new tariffs on imported building materials take effect. In 2023, the United States imported $215 million worth of gypsum, positioning itself as the world's largest importer of this essential construction material. The domestic lumber industry, unable to meet the burgeoning demand, has led to increased reliance on imports. As tariffs on Canada, Mexico, and China come into play, homebuilders can expect a rise in costs ranging from $7,500 to $10,000 per home.
Lumber, a critical component in homebuilding, is witnessing cost increases set to average around $4,900 per home. With approximately one-third of U.S. homebuilding lumber coming from Canada, the re-imposition of a 25% tariff on Canadian goods threatens to disrupt supply chains significantly. These economic measures are expected to reshape not only the market for new homes but also impact existing home prices.
"Rising costs due to tariffs on imports will leave builders with few options. They can choose to pass higher costs along to consumers, which will mean higher home prices, or try to use less of these materials, which will mean smaller homes." – Danielle Hale, chief economist at Realtor.com.
The U.S. housing market heavily relies on materials sourced beyond its borders. As domestic producers raise prices to align with imported supplies, the landscape becomes increasingly challenging for builders. This volatility in pricing is compounded by the looming uncertainty of tariffs, prompting dealers to accelerate purchases ahead of the busy building season.
"In the short term it is going to be very volatile from a pricing perspective," – Kyle Little, chief operating officer at Melville, New York-based Sherwood Lumber.
The tariff-induced price hikes extend beyond new constructions. Existing homes are not immune as potential buyers might shift their focus toward them, further driving up prices. Additionally, major remodeling projects could see a decline as these too rely heavily on tariff-affected materials.
"We may see buyers' willingness to pay rise for existing homes as newly built homes get pricier, which would mean rising prices for existing homes, too. We may also see a lower appetite for major remodeling projects that would rely on these tariff affected inputs, hamstringing the ability of consumers to remake their homes to fit their current needs." – Danielle Hale, chief economist at Realtor.com.
The re-imposed tariffs have created a precarious situation for Canadian lumber producers who might cease shipments to the U.S., exacerbating the supply crunch. This complex transition underscores the difficulty of rapidly altering entrenched supply chains.
"That won't be a flip of a switch. You're taking a 40-year supply chain and trying to switch overnight – that's hard." – Kyle Little, chief operating officer at Melville, New York-based Sherwood Lumber.
The National Association of Home Builders (NAHB) warns that additional tariffs on lumber could further escalate construction costs and deter new developments. This scenario ultimately places the financial burden on consumers through higher home prices.
"Any additional tariffs on lumber could further increase the cost of construction and discourage new development, and consumers end up paying for the tariffs in the form of higher home prices." – NAHB (National Association of Home Builders).
Amidst these challenges, there remains a glimmer of optimism as mortgage rates have seen a notable decline since Election Day and Inauguration.
"I think thus far, one of the biggest wins for the American people is since Election Day, and since Inauguration, mortgage rates have come down dramatically." – Scott Bessent, Treasury Secretary.