As the United States experiences another term under President Donald Trump, his proposed tariff policies have sparked concerns across various sectors of the economy, with the housing market being no exception. The potential implementation of these tariffs could have significant implications for new home prices in 2025, affecting both homebuyers and the construction industry at large.
Tariff Proposals and Their Immediate Effects
Trump has proposed implementing a range of tariffs, including a 10% to 20% tariff on all imports, an additional 60% to 100% tariff on Chinese goods, and a potential 25% tariff on Canadian and Mexican imports. These broad-reaching tariffs could have a cascading effect on the cost of construction materials, ultimately influencing the price of new homes.
The construction industry relies heavily on imported materials, and any increase in tariffs would likely lead to higher costs for builders. For instance, the National Association of Home Builders (NAHB) has expressed concern about the potential impact on the availability of construction materials.
Jim Tobin, president and CEO of NAHB, noted to Marketplace that about a quarter to a third of their labor comes from overseas, highlighting the industry's dependence on global supply chains. Unsurprisingly, the concern over tariffs has trickled down to the builders themselves. According to Zonda’s January Builder Survey, 20% of builders are not worried about tariffs, 67% are slightly worried, and 13% are very worried.
Rising Construction Costs
One of the most immediate effects of the proposed tariffs would be an increase in the cost of building materials. While some argue that tariffs could spur domestic production, the short-term impact would likely be higher prices for imported goods used in construction. This could include everything from lumber to steel, appliances, and other finishing materials.
The housing market has already experienced the effects of tariffs on specific materials. For example, tariffs on Canadian softwood lumber have persisted and even doubled under the Biden administration, leading to higher costs for U.S. builders. If Trump's broader tariff proposals are implemented, this trend could extend to a wider range of construction materials.
Labor Market Considerations
Trump's immigration policies, particularly his plans for mass deportation, could exacerbate labor shortages in the construction industry. Both documented and undocumented workers perform a substantial portion of the labor in construction, and any reduction in this workforce could lead to increased labor costs and potential project delays. This, in turn, would likely contribute to higher new home prices.
Economic Ripple Effects
The implementation of tariffs could have broader economic consequences that indirectly affect new home prices. Economists predict that a 10% universal tariff could raise inflation by approximately 0.8 percentage points in 2025. This inflationary pressure could lead to higher interest rates, potentially offsetting any benefits from proposed tax cuts.
Higher interest rates would increase the cost of financing for both builders and homebuyers. As Brett House, an economics professor at Columbia Business School, pointed out to Marketplace, "One of the biggest determinants of the cost of housing and new home construction is the cost of financing that construction".
Regional Variations
The impact of tariffs on new home prices is likely to vary across different regions of the United States. In high-cost areas such as Southern California, where land costs are the primary driver of home prices, the effect of increased material costs might be less pronounced. However, in regions where construction costs make up a larger proportion of the final home price, the impact could be more significant.
Potential Mitigating Factors
While the overall trend points towards increased new home prices, there are potential mitigating factors to consider. Some experts, such as Tobin, suggested to Marketplace that tariffs could encourage domestic production of construction materials, which might help keep prices stable in the long term. However, the transition period could still see significant price increases.
The potential implementation of Trump's proposed tariffs in 2025 is likely to put upward pressure on new home prices in the United States. Through a combination of increased material costs, potential labor shortages, and broader economic effects, the construction industry may face significant challenges that could be passed on to homebuyers.
However, the full extent of the impact remains uncertain and will depend on various factors, including the specific implementation of the tariffs, the response of domestic industries, and overall economic conditions. As the situation develops, potential homebuyers and industry professionals alike will need to closely monitor these policy changes and their effects on the housing market.
