Trump tariff showdown could have huge impact on housing market | Official Website of Louis Velazquez, entrepreneur, finance guy and tech innovator

After several years of consistent mortgage rate increases and soaring home prices, the prognosis for the 2025 housing market seemed promising at the start of the the year. However, recent economic and political instability has cratered consumer confidence and homebuyer optimism.

The Trump administration had suggested imposing tariffs on key U.S. trade partners Canada and Mexico over the past few months, but yesterday, it announced controversial plans to implement retaliatory tariffs on most countries.

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Though Southeast Asian nations will be heavily affected by tariffs of up to 49%, Canada, which supplies the majority of lumber for U.S. 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.

Now, prospective home buyers waiting for the market to turn around are concerned that tariffs could create a housing slowdown and reduce affordability.

The Trump administration recently announced blanket tariffs with most U.S. trading partners, which homebuyers worry could increase housing prices.

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Tariffs on Canada and China will hit the U.S. construction industry hard

After months of plans to levy tariffs against Canada, China, and Mexico, the Trump administration announced reciprocal blanket tariffs against most of its trading partners. This move will affect over 50 countries and has garnered criticism from both sides of the aisle.

The housing sector comprises over 15% of the U.S. 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 U.S.

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The National Association of Home Builders (NAHB) President Jim Tobin believes that these tariffs will counteract progress being made in the sluggish housing market.

The organization 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.”

The NAHB estimates that these tariffs will increase new home prices by an average of $9,200, while other projections anticipate price hikes of up to $25,000.

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.

Meanwhile, 56% of Americans believed that Trump’s reciprocal tariffs will worsen housing market affordability, and 70% think tariffs will make the market less “liquid” and slow housing sales.

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.

However, if homebuyers face plunging investments and a potential recession, lower mortgage rates may not be enough to reignite the housing market.