The U.S. housing market faces new challenges as tariffs on goods from Canada, Mexico, and China threaten to further inflate home prices. Roughly 30% of the softwood lumber consumed in the United States is imported, predominantly from Canada, while 71% of lime and gypsum product imports, totaling $352 million, come from Mexico. The Trump administration's imposition of a 25% tariff on these imports could make construction materials significantly more expensive, exacerbating an already strained market.
Adding to the complexity, builders are grappling with a labor shortage heightened by mass deportations of undocumented immigrants under the Trump administration. Approximately 30% of construction workers are immigrants, with a considerable portion undocumented, contributing to the labor deficit in the industry.
The U.S. has attempted to counter these issues by ramping up domestic lumber production. However, despite these efforts, 70% of sawmill and wood product imports—valued at $8.5 billion—still come from Canada. Similarly, wallboard or gypsum continues to be imported from Mexico, underscoring the industry's reliance on foreign materials.
The housing market's struggle is compounded by high mortgage interest rates, a limited supply of existing homes for sale, and record-high home prices. The imposition of tariffs could raise construction material costs by $3 billion to $4 billion if fully implemented, further pressuring homebuilders and potential buyers.
Sheryl Palmer, CEO of Arizona-based homebuilder Taylor Morrison, underscores the widespread impact of these tariffs.
"Even with a smaller portion of our lumber coming from Canada, and some materials from Mexico, we will all be affected—which, in turn, can impact consumers and their ability to purchase a home in the short-term," she stated.
Palmer also expressed hope that the situation would be temporary.
"In a time where some consumers are still struggling to overcome higher interest rates, my sincere hope is that these will be short-lived."
Other key materials such as steel and appliances are sourced from China. With the new tariffs, duties on these goods will exceed 39%, further straining construction budgets. The National Association of Home Builders (NAHB) has petitioned the Trump administration to exempt building materials from these tariffs, citing the president's executive order aimed at expanding housing supply.
The U.S. housing market has already seen prices rise over 40% since the pandemic began. In November, prices were still 3.8% higher compared to the previous year as reported by the S&P Corelogic Case-Shiller national home price index.
Jaret Seiberg, a housing policy analyst for TD Cowen Washington Research Group, highlighted concerns about the affordability crisis for first-time buyers.
"We believe this could make worse the affordability crisis for first-time buyers. On the plus side, it could increase pressure on Congress to enact policies that encourage more entry-level construction including expanded tax credit programs," he remarked.