President Trump's tariffs on building materials from Canada and Mexico, coupled with his mass deportation plans, could exacerbate the affordability crisis in the housing market. The tariffs will increase construction costs, potentially leading to higher home prices and discouraging new development. The labor shortage in the construction industry, intensified by deportations, further complicates the situation.
Home prices are already at record highs, facing upward pressure from high mortgage interest rates, a low supply of existing homes for sale, and historically high home prices. Trump's mass deportation plans could further strain the market by reducing the construction labor force. Roughly 30% of softwood lumber consumed in the U.S. is imported, largely from Canada. Wallboard, known as gypsum, is imported from Mexico.
The 25% tariff President Donald Trump levied on goods from these key trading partners will make these products more expensive. \'More than 70% of the imports of two essential materials that home builders rely on — softwood lumber and gypsum — come from Canada and Mexico, respectively,' wrote Carl Harris, chairman of the National Association of Home Builders in a release. 'Tariffs on lumber and other building materials increase the cost of construction and discourage new development, and consumers end up paying for the tariffs in the form of higher home prices.'\According to the latest read from the S&P Corelogic Case-Shiller national home price index, home prices have surged well over 40% since the start of the pandemic and were still 3.8% higher in November, compared with the previous November. That annual increase was higher than the 3.6% in October. 'We believe this could make worse the affordability crisis for first-time buyers. On the plus side, it could increase pressure on Congress to enact policies that encourage more entry-level construction including expanded tax credit programs,' wrote Jaret Seiberg, housing policy analyst for TD Cowen Washington Research Group. The NAHB is asking the Trump administration to exempt building materials from the 25% tariffs, noting his executive order on the first day of his presidency which sought to 'expand housing supply.' \While the U.S. has ramped up lumber production in recent years, 70% of the country's sawmill and wood product imports — $8.5 billion — come from Canada. They are already subject to a 14.5% tariff, so Trump's new policy would raise it to over 39%. And 71% of lime and gypsum product imports are from Mexico, totaling $352 million. Other materials like steel and appliances are sourced from China. New duties on imports from China, Canada, and Mexico could raise construction material costs by $3 billion to $4 billion if they all take effect, affecting builders' ability to complete projects, according to the NAHB. The tariffs are likely to hit smaller homebuilders with tighter margins harder, but big builders are not immune. 'Even with a smaller portion of our lumber coming from Canada, and some materials from Mexico, we will all be affected—which, in turn, can impact consumers and their ability to purchase a home in the short-term,' said Sheryl Palmer, CEO of Arizona-based homebuilder Taylor Morrison. 'In a time where some consumers are still struggling to overcome higher interest rates, my sincere hope is that these will be short-lived.' \Builders are already contending with a labor shortage that is only getting worse after the Trump administration started mass deportations of undocumented immigrants. Roughly 30% of construction workers are estimated to be immigrants, and a significant share of those workers are undocumented. 'You can run them all out of the country, but who's going to build houses?' said Bruce McNeilage, CEO of Nashville-based Kinloch Partners, a single-family rental home developer. While the bulk of the effect of tariffs is on new housing construction, the existing market could also feel the effects. If the costs of other consumer goods increase, all potential buyers will have less spare cash to save for a down payment. There was also an expectation that interest rates would fall this year, but if inflation heats up again due to the tariffs, rates could even rise. This layering of both economic realities and emotional perceptions of personal wealth could hit the all-important, upcoming spring market hard
HOUSING MARKET TARIFFS CONSTRUCTION COSTS DEPORTATIONS LABOR SHORTAGE
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