Tariff Uncertainty Hurts Builder Confidence

By CHUCK GREEN

Questions about the potential impacts of tariffs have pushed builder sentiment down as it is now estimated they could raise costs by $7,500 to $10,000 per single-family home.

Leaders at the National Association of Home Builders reported on March 17 that builder confidence in the market for newly built single-family homes had reached its lowest level in seven months.

Economic uncertainty, the threat of tariffs, and elevated construction costs were to blame, even as builders expressed hope that a better regulatory environment could lead to an improving business climate, according to a press release.

NAHB Chief Economist Robert Dietz said that data from the most recent National Association of Home Builders/Wells Fargo Housing Market Index survey reveals that builders estimate a typical cost effect from recent tariff actions at $9,200 per home.

According to the NAHB, $204 billion worth of goods were used in the construction of both new multifamily and single-family housing in 2024.

$14 billion of those goods were imported from outside the United States, meaning approximately 7% of all goods used in new residential construction originate from a foreign nation.

Softwood lumber and gypsum – two key materials included in the construction of new homes – largely are sourced from Canada and Mexico.

Total imports of sawmill and wood products from Canada totaled $5.9 billion in 2024. Imports of lime and gypsum products from Mexico totaled $354 million in 2023, according to the NAHB.

Tariffs on steel and aluminum products will contribute to increases in homebuilding costs, NAHB’s Immediate Past Chairman Carl Harris said in a statement last month.

“Through an executive order on his first day in office, President Trump made it a top priority to reduce housing costs and increase housing supply to ease the nation’s housing affordability crisis,” said Harris. “The administration’s move to impose 25% tariffs on all steel and aluminum products imports into the U.S. runs totally counter to this goal by raising home building costs, deterring new development, and frustrating efforts to rebuild in the wake of natural disasters.”

Harris said that consumers will pay for these tariffs in the form of higher home prices.

What are people in the industry saying?

George Carrillo, CEO of the Hispanic Construction Council in Washington, DC, told The Mortgage Note that the imposition of tariffs profoundly challenges the residential real estate industry.

Tariffs, he said, have already increased the cost of Canadian lumber and it is projected construction costs will also rise. This could add $17,000 to $22,000 to the price of a new home.

“Within my role, I’ve seen the ripple effects where rising material costs and labor shortages meet shrinking housing affordability,” said Carrillo.

Alexei Morgado, CEO and founder of Lexawise Real Estate Exam Prep, said tariffs imposed on steel, aluminum, and wood have already increased the price of construction.

“This has made new home construction more expensive and, therefore, more pricey for consumers, thus lowering the new project rate. It is getting harder and harder for individuals to buy a house as affordability is declining,” said Morgado.

On the other hand, tariffs may have some benefits if they create demand for domestic production of construction materials, noted Morgado.

Susan Isaacs, a realtor with Compass Real Estate in Washington, DC, and northern Virginia, said her market is being impacted in every way by the upheaval in the federal government so it’s too early to tell what the effects of tariffs might be.

“Many of those in housing construction who knew they would be affected purchased ahead, have already absorbed the penalties, or have pre-priced them into their products. As far as everyday goods are concerned, DC doesn’t seem to have felt that impact as of yet, either, but it’s about to get real,” said Isaacs.

“Washington Gas, the primary natural gas utility in the DC area, is a subsidiary of AltaGas of Canada. Whether or not DC Metro Area residents realize it, that gas bill they already think is too high will, in all probability, spike.”

How long could this go on?

“Tariffs can last from a few months to several years. Real estate professionals, contractors, and homebuilders will need to anticipate passing increased costs to the consumer in the short term. If they are unable to pass along the costs, profitability will decline,” Ryan Paul, CPA and partner at PBMares, told The Mortgage Note.

For builders planning to ride out the storm, the impact of tariffs on imported goods might sting a little less in regions that produce a significant amount of their own construction materials.

According to a blog post by TrueParity, an analysis of the effects of tariffs on the construction industry was conducted by the University of Wisconsin.

‍It found that in the Southeast tariffs significantly increased lumber prices, impacting the affordability of new homes.

The Midwest saw a moderate impact on construction costs, with some regional variations depending on the availability of domestically sourced materials.

On the West Coast, higher costs for imported steel and aluminum affected both residential and commercial construction projects.

With that being said, Paul said he doesn’t anticipate tariffs stirring the pot for relatively long.

“I feel the tariffs should be a short-term disruption. The current administration is utilizing tariffs not primarily for economic purposes but as a political tool to advance an agenda and sway foreign policy. A short-term remedy could be for those in the real estate and construction industry to lobby for exemptions,” said Paul. 

Editor Kimberley Haas contributed to this report.