Tariffs proposed by Donald Trump already appear to be a cause of consternation for the housing market.
While many experts expect more challenges to housing affordability if tariffs are enacted, uncertainty is currently the overriding theme, especially when the sole gauge of what could happen are
"At the end of the day, there's not an expert out there that really knows what Trump's agenda on this is," said Paul Hindman, a longtime mortgage industry advisor and consultant.
"In his first 100 days, that's when all of the dust is really going to settle, because that's when most of the things that they want to get done are going to get done," he continued.
During his presidential campaign, Trump threw out tariff numbers varying from a 20% hike for all imports to as high as 60% for items specifically from China. At other junctures in the runup to November, Mexico was threatened with 100% tariffs, with the rate doubling to 200% for any equipment made by American manufacturer John Deere built south of the border.
In the weeks since emerging victorious, Trump subsequently announced new levels, this time proposing 25% tariffs on Mexican and Canadian products, and an additional 10% on top of the existing rate would apply on goods from China. The announcements also came alongside considerable
"It's really a question of whether, do you believe Donald Trump will do what he said, or do you believe he will be more like he was in his first term." said Jaret Seiberg, managing director for housing policy at TD Cowen, in a discussion at a Housing Finance Strategies conference held in December.
"If you believe he will do what he said, it means we are in for a new economic reality, a reality where there's high trade barriers, there's tariffs, it will be more expensive to build a home," he said.
The areas of concern
Ranking high on the list of worries for the housing market is any increase in the cost of
Any additional spike in lumber costs would place another roadblock in front of home buyers who already face challenges in finding
Whether tariffs turn out to be as disruptive as some fear, companies now are looking at how they need to adjust financially for whatever arrives, said Christine McDaniel, senior research fellow at Mercatus Center of George Mason University, who specializes in international trade and economics.
Should they approach any of the levels Trump put forward, the sharp increase will show up throughout the entire supply chain.
"It all depends on how much of that tariff is passed on to the consumer. The importer is paying for it, or they're passing it on to the builder. Or the builder is passing it on to the home buyer. Usually, it's a little bit of everything. Everybody absorbs a little bit of that," said McDaniel, who previously held several advisory roles within the U.S. government, including as deputy assistant secretary at the Treasury Department and senior trade economist in the White House Council of Economic Advisers.
While much of the recent tariff conversation has revolved around Canadian lumber, other vital pieces of a newly constructed home, from heat pumps and air conditioning systems to garage doors and electronic devices, would also be subject to any new regulation if imported from abroad.
The overall sum of the impacts on housing supply and demand, though, could end up being less severe than what some predict, thanks to changes the homebuilding industry introduced in the years following the Covid-19 pandemic.
After experiencing extensive delivery delays and volatile market pricing earlier this decade, builders have reconsidered where their sources are located, said Jay McCanless, senior vice president, equity research, who covers homebuilding and mortgage industries for Wedbush Securities.
"After the hell the builders went through in '21 and '22 like everyone else with supply-chain issues, they've been working really hard ever since to onshore or nearshore as much as they can," he said
Yet even if most homebuilding components were produced domestically, the market would still see some sort of tariff effect, Mercatus' McDaniel said.
"Let's say there's a domestic seller and an importer. The domestic seller sees that those tariffs are coming in on the imports, that gives them some leeway to raise their prices as well," she said.
"We always see in the data that when tariffs go up, even domestic producers will increase their prices," McDaniel advised.
Risk also appears based on where the suppliers are finding their end products' materials and components, which could be subject to tariffs, as well as any other development "that causes manufacturers to not be able to manufacture something," McCanless said.
U.S. businesses can consider domestic lumber suppliers, but many materials such as plastic, chemicals, steel and electronic components are frequently imported, especially from China.
"What I'm concerned about is the suppliers to the suppliers," McCanless said.
The macroeconomic effect
While tariff levels, wherever they land and when they occur, will end up directly boosting the costs of supplies and housing, a secondary, maybe more significant, effect on affordability that is more difficult to measure will be how they
"Regardless of tariffs and the tariffs' impact on what we do for a living, it's really the rate environment that most people are hanging their hat on," Hindman said.
Much will depend on when and how tariffs are introduced and structured. "There is, I think, a good deal of volatility ahead, and that might really be the main takeaway for the housing market," said Chen Zhao, economics research lead at Redfin.
A broad tariff that couldn't be sufficiently offset in any way, "will boost inflation, which, in general, would mean that you would have to have higher rates for longer."
Evidence of tariff bump can already be seen from post-election expectations alone. The mortgage rate surge after Trump's victory in November occurred due to "the market building in this expectation that we are likely to have more tariffs, and these tariffs are likely to lead to higher rates in the long term," Zhao said.
The various forms of tariff pressure are leading companies across business segments to budget for changes ahead of 2025. Industry realignments are not out of the question, either, McDaniel said.
"They're focused on what date they would have to start paying the extra duty so they can financially plan for it," she said.
"Not all companies will survive these higher costs. There might be more pressure for some companies to merge, or some larger companies to acquire smaller companies. When those margins get really thin, not all companies can survive."
While homebuilders and mortgage lenders won't be able to avoid all of the impact after seeing their own
The resiliency of the housing market in 2024 in the face of record high prices and volatile rates showed many consumers are ready to purchase and
"Maybe costs for building are a little more; maybe it takes a little more time. But does that have an impact on demand? Probably not," McCanless said.
"I don't think the tariffs on their own are going to have that big of an effect on demand," he said.
