In early February, President Trump’s preparation to impose tariffs on Canada, Mexico, and China has sparked tensions worldwide. As a real estate column in the United States, it is important to discuss the impact of “tariffs” on the real estate market.
Many U.S. media and real estate industries have expressed pessimism about the impact of tariffs, believing that they will lead to an increase in building material prices, exacerbate inflation, and further burden the affordability of the American people. Is it really that bad? Let’s delve deeper into this issue.
For those following tariff news, it is known that President Trump announced a 25% tariff on Canada and Mexico starting on February 4, and a 10% tariff on Chinese goods. Specifically, Canada is divided into two parts, with energy products currently subject to a 10% tariff and other goods at 25%; Mexico is subject to a flat 25% tariff; and for China, in addition to the existing 15% tariff, an additional 10% tariff was imposed, totaling 25%.
Why did Trump target China, Canada, and Mexico with tariffs? Ostensibly, it is to balance the trade deficits between the United States and these three countries. However, in reality, Trump is using tariffs to pressure Canada and Mexico on fentanyl smuggling and strengthen control over illegal immigration at the border. As for China, the issue of fentanyl smuggling has been a longstanding concern for the United States. Therefore, Trump aims to negotiate with these countries to address illegal immigration and drug problems through increased tariffs.
To counter the U.S. tariffs, China, Canada, and Mexico have announced retaliatory tariffs against American imports. However, in response, both Canada and Mexico have agreed to strengthen border control by deploying ten thousand soldiers each to prevent drugs from flowing into the United States. As a result, Trump has decided to postpone the implementation of tariffs for a month to observe whether they achieve the desired effect.
However, as of now, China has not taken any action to suspend tariffs, as the Chinese government has not made further requests to halt them. In fact, a spokesperson for China’s Ministry of Public Security strongly expressed dissatisfaction and firm opposition on February 2, stating that “the root of the fentanyl crisis in the United States lies within itself.” Trump also mentioned that he is in no rush to meet with Xi Jinping. Therefore, from February 4, the U.S. began imposing a 10% tariff on Chinese imports.
In retaliation against the U.S., China announced on February 10 that it would impose a 15% tariff on American coal and liquefied natural gas, as well as a 10% tariff on crude oil, agricultural machinery, high-displacement vehicles, and pickup trucks. Furthermore, China has targeted reviews of Google and Apple and, for the first time, listed apparel company PVH and biotechnology company Illumina on a list of unreliable entities in response to the U.S. tariffs. The extent to which these measures will be implemented will depend on the outcome of future meetings between the leaders of the U.S. and China.
Trump’s tariffs have already sparked a series of ripples, but in reality, his bold actions must be backed by leverage; otherwise, he would not have initiated trade wars unilaterally, becoming a global enemy without any negotiation space.
For example, in current tariff negotiations with China, Canada, and Mexico, all three countries have large trade deficits with the United States, not only profiting substantially from the U.S. but also exporting illegal immigrants and drugs to the country. This is untenable for Trump; either impose tariffs or address border and drug issues. On the one hand, Trump also aims to encourage U.S. businesses to bring back manufacturing and energy industries to domestic production, increasing energy exploration to alleviate concerns over tariffs and boost employment opportunities.
Therefore, there are several underlying intentions behind the implementation of tariffs by Trump. How will this affect the U.S. real estate market? Let’s first look at some U.S. reports. Redfin’s economic team leader believes that a significant portion of building materials in the U.S. are imported from Canada; therefore, the proposed tariffs are expected to raise the costs of these materials, leading to an increase in construction and renovation costs. This cost increase may reduce housing supply or pass the costs on to homebuyers.
According to the National Association of Home Builders (NAHB), approximately 70% of softwood used in residential construction is imported from Canada, while about 70% of gypsum used for drywall also comes from Mexico. Additionally, aluminum and steel imported from China are also used in U.S. construction.
NAHB Chairman Carl Harris stated, “Imposing tariffs on lumber and other building materials will increase construction costs, hinder new development, and ultimately raise home prices for consumers.” Therefore, Harris wrote a letter to Trump the day before the tariff implementation, requesting exemptions for softwood and gypsum. However, Trump evidently did not heed this request.
According to the Bureau of Economic Analysis (BEA), in 2024, approximately 7% of imported goods totaling $13 billion were used in the construction industry. Susan Isaacs, with over twenty years of experience in construction and real estate brokerage, explained in her analysis that due to the tariff impact, material costs for multi-unit residential construction projects could surge by 7.5%, leading to a 3% to 4% increase in total construction costs.
Will consumers face higher housing prices due to increased tariffs? To answer this question, it’s important to understand who should bear the cost of tariffs.
Tariffs are taxes levied by the federal government on imported goods by companies. This means that tariffs imposed on Canadian goods are not paid by the Canadian government but by the companies importing Canadian products into the U.S.
Therefore, for example, if a U.S. homebuilding company wants to purchase $200,000 worth of Canadian wood, they would need to pay an additional $50,000 to import this wood. Ultimately, the construction company can choose to pass on some or all of the additional costs to consumers, leading to higher home prices.
In addition to rising new home prices and renovation costs, Senior Economic Analyst at Bankrate believes that tariffs could also lead to an increase in mortgage rates. Rising prices and inflation due to tariffs may impact short-term rates set by the Federal Reserve, as well as long-term rates related to mortgage loans.
Apart from rising construction costs, tariffs could have two other effects. Firstly, the performance of construction stocks may be affected, leading to a decline in shares of builders like DR Horton and Lennar. However, this may be a short-term phenomenon, as hedge funds still view real estate favorably, particularly as a hedge against inflation during this period of economic volatility, preventing any bubble formation due to rapid price increases during the pandemic.
Secondly, builders may seek cheaper alternative materials, causing delays in construction projects, further tightening an already strained housing inventory.
In summary, the tariffs are likely to have five major impacts on the real estate industry: 1) causing a rise in construction costs; 2) driving up home prices; 3) resulting in volatility in construction sector stocks; 4) prolonging construction schedules due to substitute material searches; and 5) adding pressure to new home inventory levels.
While tariffs may seem like a “necessary evil” for the real estate industry, we should not lose sight of the bigger picture. As mentioned earlier, Trump’s primary interest lies in using tariffs as leverage to gain concessions from other countries on policies, rather than implementing protectionist trade policies towards its cross-border neighbors.
A senior official at the White House explained to Realtor.com that the tariffs imposed on Mexico and Canada are emergency measures to address national security issues, not long-term economic policies. “The purpose of these tariffs is to convey the severe challenges we face domestically and the state of our border trade.”
Stephen Haines, President of Artisan Built Communities in Georgia, remarked that tariffs are a relatively minor concern for him, as he sees Trump’s trade measures as a bargaining strategy. He stated, “Trump is first and foremost a businessman; he operates to instill fear because it is effective.”
Haines believes that tariffs are only a small part of his concerns; he is more worried about high-interest rates, stringent zoning laws, and issues in the construction supply chain, which directly impact new constructions.
Additionally, Jaret Seiberg, a housing policy analyst at TD Cowen Washington Research Group, believes tariffs may exacerbate the affordability crisis for first-time homebuyers. However, on a positive note, tariffs could also pressure Congress to enact more policies regarding entry-level housing, including expanding tax relief programs.
Furthermore, aside from observing tariffs, Trump had previously expressed his intention to lower mortgage rates before the elections to make housing more affordable, simplify federal building codes to accelerate new constructions, open up federal lands, and impose super-low tax rates. These cost-cutting measures aim to end the housing affordability crisis.
Moreover, let’s not forget that in his first term in 2017, Trump’s tax cuts did indeed reduce the tax burden for middle-class families. According to the U.S. Senate Finance Committee analysis, from 2017 to 2018, the average tax burden for middle-class households with incomes ranging from $50,000 to $75,000 decreased by 13.2%; households with incomes between $75,000 and $100,000 saw a 13.6% reduction in average federal tax burden during the same period. While many tax-cut measures are due to expire this year, Trump advocates for extending some of these tax cuts and making them permanent.
On his first day in office, Trump signed an executive order to lower housing costs, citing regulatory costs as a primary cost factor. The National Association of Home Builders praised Trump, saying the President understands that America is facing a housing affordability crisis, the only way out of this crisis is by eliminating unnecessary, costly barriers like regulations.
In fact, tax cuts, regulatory relaxation, and tariffs are three pillars of Trump’s economic strategy that he implemented in his first term. Hindered by the deeply entrenched bureaucracy in the U.S. government, he was unable to fully execute his plans. Now, he has started using tariffs to counter unfair trade practices by other countries; we can expect other policies to be introduced soon, considering Trump has only one four-year term and must race against time. ◇