US trade wars could have major implications for an already tenuous housing market. Canada, which supplies the majority of lumber for US housing construction, will now face tariffs of between 10% and 25%.
A price hike on building materials will likely make building affordable housing feasible, an approach that many real estate experts believe is crucial to resolving the housing market gridlock.
The housing sector comprises over 15% of the US GDP and will be heavily impacted by tariffs on building materials such as lumber and steel. And 70% of imported lumber comes from Canada, which is already subject to a 14.5% tariff rate.
The Trump administration spared Canadian lumber imports from an additional 10% tariff this week, but experts still estimate lumber prices will increase further this year. Another key building material, gypsum, is used in drywall and is sourced almost exclusively from Mexico, while China supplies a considerable amount of steel, aluminum, and plastic to the US.
The National Association of Home Builders (NAHB) noted that the tariffs are "not only expected to raise the cost of building materials, which are up 34% since December 2020, far higher than the rate of inflation, but also wreak havoc on the building material supply chain. In turn, this will put even more upward price pressure on building materials."
Americans fear trade wars will dampen housing affordability. Uncertainty stemming from the newly unveiled tariffs has eroded consumer and investor confidence, which has, in turn, diminished homebuyer optimism.
Housing affordability is the biggest barrier to homeownership, as many would-be buyers feel priced out of the market with years of elevated mortgage rates and home prices. Most housing economists predict tariffs will raise prices universally across the housing and construction industries. Still, some note that tariffs could bring relief to the housing market in the form of lower mortgage rates. The slowed economic growth and S&P uncertainty caused by the fallout from blanket tariffs will likely drive down the 10-year treasury yield, bringing down mortgage rates.
