A new home built on September 24, 2024 in Englewood Cliffs, New Jersey.
Adam Jeffrey | CNBC
From wood to drywall to appliances and finishes, much of what enters the US home comes from outside the US borders.
The costs of these products are about to rise as President Donald Trump’s administration imposes tariffs on China, Mexico and Canada. Items from China are currently facing 20% tax, an increase from the previous 10% tax, while products from Canada and Mexico face 25% tax. Canadian wood has already been subject to 14.5% separate duties.
Citing estimates from US home builders, Rob Dietz, chief economist for the National Association of Home Builders, said the new tariffs could increase builders’ costs from $7,500 to $10,000. Last year, NAHB estimated that median new home prices would rise by $1,000 for every $1,000 increase in the median home prices of around 106,000 potential buyers.
The biggest impact on home builders is due to increased timber costs, and on average, the average is expected to be around $4,900, according to the leading US builders group, the leading US builders group.
Approximately a third of the wood used in US home construction comes from Canada, and domestic timber producers are expected to raise prices to match imported supplies.
“Trump first imposed tariffs on February 1 and later delayed, and we saw purchases increase at a price that would increase 13% in the 2 x 4 prices of spruce spine fur in the West,” said Paul Janke, principal of Forest Economic Advisors. “We expect Canadian producers to halt timber to the US as a 25% tariff has been reimposed on Canadian goods shipped to the US.
Wood futures rose 5% last week and were steadily rising on Tuesday.
Trump issued an executive order on Saturday to increase domestic timber production through streamlining regulations and permitting processes. The home building industry won that.
“Stable and affordable timber supply is extremely important for our industry to deal with the country’s housing supply crisis,” LBA CEO Ken Gere wrote in a statement. “I commend President Trump for exploring opportunities to increase domestic supply as a long-term solution, as the domestic timber industry is unable to meet current demand.”
NAHB, representing small to medium-sized private builders, “welcome” the move, but said in a statement.
When it comes to increasing domestic production right away, that’s easier than that. Jannke estimates it will take up to three years to build multiple new factories. He explained that there are only a limited number of companies that manufacture sawmill machinery, and there are even fewer companies, perhaps one or two.
High demand during the first few years of the Covid-19 pandemic was rapidly expanding as home builders went to gangbusters.
“But so many people wanted to build a factory, so the lead time for equipment manufacturers is now two years,” Jannke said. “Additionally, once the factories were built, the labor force had to be found to operate the factories, which are located in rural areas where they tend to not have the skilled labor required to operate modern sawmills.
The labor force from logging to transport is already decreasing in lean terms. Opening new lands and registering the industry is one thing, but finding workers to bring us to the market is another.
“In the short term, it’s going to be very unstable from a pricing perspective,” said Kyle Little, chief operating officer of New York-based Melville. Regarding the increase in production, “It’s not a flip of a switch. You’ve been on the supply chain for 40 years and you’re trying to switch overnight. That’s difficult.”
A landscape of home buying
Beyond lumber, the home construction industry is subject to rising costs across the sector.
China is the market leader in home appliances. Also, most of the drywall, or plaster used in both commercial and residential construction, are imported from other countries. In 2023, the US imported $215 million in gypsum and became the world’s largest importer of products, according to OEC World, a trade data platform. It comes mainly from Spain, Mexico and Canada.
“The increased costs due to import duties allow builders to have fewer options, so they can choose to pass on higher costs to consumers. This means higher home prices or try to reduce the use of these materials.
Hale said new construction sees the biggest impact, but tariffs will change the landscape of the entire housing market, including existing homes.
“As newly built homes become more expensive, the willingness to pay for existing homes may mean an increase in the price of existing homes as well. It also means an increase in the prices of existing homes. It also means a lower appetite for major remodeling projects that rely on inputs affected by these tariffs, and hamstring the ability to rebuild the homes to meet current needs,” she added.
The costs of home building will certainly rise, but the Trump administration has been touting low mortgage rates over the past few weeks. According to Mortgage News Daily, the 30-year fixed average rate reached a recent peak of 7.26% on January 13th. Currently, it reaches approximately 6.64%.
“I think that, so far, one of the biggest wins for Americans has been down dramatically since Election Day and since taking office,” Treasury Secretary Scott Bescent said in an interview with Fox News on Tuesday.
Bescent said the spread between the Treasury Department and the mortgage rate has shrunk in the decade, but that spread has actually grown significantly since Trump took office.
Tariffs come when the US housing market is already under pressure. Signature contracts for existing homes fell to the lowest level on record in January, according to the National Association of Realtors. Sales of newly built homes fell 10% in January, compared to December, according to the US Census. And prices remain stubbornly high, with the inventory of homes for sale still historically low.
