On September 24, 2024, a new home was built on Englewood Cliff, New Jersey.
Adam Jeffery | CNBC
From wood to drywall to appliances to finishes, most of the entry into the U.S. homes come from the U.S. external borders.
The cost of these products is about to rise with President Donald Trump’s administration Tariffs are imposed on China, Mexico and Canada. Now, goods from China are subject to a 20% tax, an increase from the previous 10% tax, and goods in Canada and Mexico face a 25% tax. Canadian timber has paid a separate tariff of 14.5%.
The new tariffs could increase builders’ costs from $7,500 per home to $10,000, and are estimated by U.S. home builders, said Rob Dietz, chief economist at the National Association of Home Builders. Last year, NAHB estimated that for every $1,000 increase in the median price of new home prices, there were about 106,000 potential buyers.
According to the leading U.S. builders, the biggest impact on home builders is the increase in timber costs, which is expected to total about $4,900 per room on average.
About one-third of the timber used in U.S. home construction comes from Canada, and domestic timber producers are expected to raise prices to meet imported supplies.
“Since Trump first imposed tariffs on February 1, we found that purchases have increased as Western Spruce – Puli – price two times twice the price,” said Paul Jannke, head of forest economic adviser. “With the reimbursement of the 25% tariff on Canadian goods, we expect Canadian producers to stop shipping timber to the U.S., while dealers have been reluctant to buy uncertainty surrounding tariffs and need to speed up the purchase price before the upcoming construction season.”
Timber futures grew 5% over the past week and rose steadily on Tuesday.
Trump issued an executive order on Saturday to simplify regulatory and licensing procedures to increase domestic timber production. The housing construction industry sees it as a victory.
“It is crucial for our industry to resolve the housing supply crisis in the country,” LBA CEO Ken Gear wrote in a statement. “The domestic timber industry is unable to meet current demand, so we commend President Trump for exploring the opportunity to increase domestic supply as a long-term solution.”
NAHB, which represents small and medium-sized private builders, “welcome” the move, but said in a statement: “Any other tariff on timber can further increase construction costs and prevent new development costs, while consumers end up paying the tariffs in the form of higher housing prices.”
As for increasing domestic production immediately, it is easier said than done. Jannke estimates that it will take up to three years to build multiple new plants. He explained that there are limited numbers of companies that manufacture sawmill machinery, or even fewer, and maybe one or two can build mills on top to the bottom.
In the first few years when co-builders began to feast, demand was high when wood producers rushed to expand.
“But many people want to build (or) expand the factory so much that the delivery time for equipment manufacturers has risen to two years,” Jenny said. “The most important thing is that once a factory is built, labor factories have to be found to operate mills. These mills are located in rural areas and these mills often do not require skilled labor to operate modern sawmills. This has increased another year before the mills are fully operated.”
The labor force from logging to traction has been slimmer and reduced. It is one thing to open up new land and relax the industry, but it is another to find workers to bring timber goods to market.
“In the short term, from a pricing standpoint, it will be very turbulent,” said Kyle Little, chief operating officer of New York-based Sherwood Lumber. As for the increase in production, “it’s not a flip of the switch. You’re using a supply chain for 40 years and trying to switch overnight – it’s hard.”
House buying landscape
In addition to timber, the cost of the housing construction industry has increased across the entire sector.
China is the market leader in household appliances. Moreover, most plaster walls or plaster used in commercial and residential buildings are imported from other countries. According to trade data platform OEC World, the United States imported $215 million in gypsum in 2023, becoming the largest importer of the product. It comes mainly from Spain, Mexico and Canada.
“The rising costs will leave builders with few options due to import tariffs. They can choose to shift higher costs to consumers, which means higher housing prices, or try to use less of these materials, which will mean smaller homes.”
Hale noted that while new buildings will see the biggest impact, tariffs will change the overall landscape of the housing market, including existing homes.
“As new home prices get higher, we may see buyers willing to grow for existing homes, which means prices for existing homes are rising. We may also see a lower appetite for major remodeling projects that rely on inputs from these tariff impacts, ham indenting consumers’ capabilities and allowing consumers to re-engineer the homes to suit their current needs,” she added.
While the cost of home construction will certainly rise, the Trump administration has touted lower mortgage rates in the past few weeks. According to Mortgage News, the 30-year fixed average rate reached its most recent 7.26% on January 13. Now it has dropped to about 6.64%.
“I think one of the biggest wins for the American people so far is that mortgage rates have dropped sharply since the inauguration since Election Day,” Treasury Secretary Scott Bessent said in an interview with Fox News on Tuesday.
Bessent noted that although the spread has actually widened significantly since Trump took office, the 10-year difference between the Treasury Department and mortgage rates has narrowed.
Tariffs are at a time when the U.S. housing market is already under pressure. According to the National Association of Realtors, contracts for existing homes have dropped to the lowest level recorded. Sales of newly built homes fell 10% in January, according to the U.S. Census. And the prices are still high, and the list of homes for sale is still very low in history.
