How New Tariffs Could Impact Housing Costs and Mortgage Rates

The recent announcement of tariffs on imports from Mexico, Canada, and China has sparked concerns across the construction and housing industries. While tariffs on Canadian and Mexican goods have been delayed for 30 days due to ongoing negotiations, a 10% tariff on Chinese goods has already gone into effect. These tariffs, particularly on materials like lumber, drywall, steel, and gypsum, could lead to higher costs for builders—and ultimately, for homebuyers and renters.

How Will Tariffs Impact Housing Costs?

The National Association of Home Builders (NAHB) reports that about 7% of all materials used in new home construction are imported, with Canada providing nearly 70% of sawmill and wood products. Many of these materials already face existing tariffs, and the newly proposed ones could add an estimated $3 billion to $4 billion in additional costs.

In the past, similar tariffs forced developers to rethink or even cancel projects, particularly for affordable housing. As the U.S. continues to experience a housing shortage—estimated at 4.9 million units—higher material costs could slow new construction, reducing available inventory and driving up home prices.

What Does This Mean for Mortgage Rates?

While tariffs primarily impact material costs, they could also indirectly influence mortgage rates. If home prices continue to rise due to increased construction costs, inflationary pressures may persist. The Federal Reserve closely monitors inflation when making decisions about interest rates, and prolonged inflation could lead to continued high mortgage rates.

Currently, mortgage rates have remained between 6% and 7% for much of the past two years. While the Federal Reserve has hinted at potential rate cuts in 2024, additional economic pressures—like rising housing costs—could delay those reductions. Higher home prices, coupled with elevated mortgage rates, could make homeownership even more challenging for buyers.

What’s Next?

Industry leaders and policymakers are closely watching the situation, as many hope for continued negotiations to prevent tariffs from taking full effect. Some developers are already stockpiling materials to hedge against rising costs, but if the tariffs move forward, we may see further disruptions in the housing market.

For more details on the proposed tariffs and their potential effects, check out the original article [here].