Tariffs, or taxes imposed on imported goods, can have far-reaching effects on various sectors of the economy, including the housing market. There’s a lot going on right now in Washington and the imposition of tariffs on building materials such as lumber, steel, and aluminum is bound to raise concerns. Here are the possible consequences for housing starts, construction costs, and overall affordability.
Increased Construction Costs: Tariffs on imported building materials can lead to higher costs for developers and builders. For example, a 25% tariff on steel and aluminum imports can significantly raise the price of these materials, which are essential for construction projects. CoreLogic analysis suggests that tariffs could push home construction costs up by 4% – 6% over the next 12 months as material costs adjust to the new landscape. In some cases, tariffs could push prices up by double-digit percentages.
Higher Home Prices: The increased costs of construction materials are often passed on to homebuyers, resulting in higher home prices. This can make homeownership less affordable for many families, especially first-time buyers.
Reduced Housing Starts: Higher construction costs can discourage developers from starting new projects, leading to a decrease in housing starts. This can exacerbate the existing housing shortage and contribute to higher rental prices.
Inflationary Pressures: Tariffs can contribute to inflation by increasing the cost of goods and services. This can lead to higher mortgage rates, further complicating the affordability of homes.
Privately-owned housing starts in January 2025 clocked in at 1,366,000, which is 9.8 percent below the revised December estimate of 1,515,000. It's also slightly lower (0.7 percent) under the January 2024 rate of 1,376,000. Single-family housing starts also slumped in January, coming in at 993,000.
Source: HBS Dealer | Corelogic