A trade war sparked by American tariffs on imports from Canada and Mexico will put the squeeze on homebuyers and builders in the U.S., economists say.
Last week, President Donald Trump announced a 25% duty on imports from Canada and Mexico, and a 10% tariff on goods from China effective Tuesday. Canada and Mexico have already announced plans to retaliate with their own duties.
On Monday, Trump announced on social media that he would delay tariffs on Mexico for one month to allow for negotiations after Mexico’s President Claudia Sheinbaum agreed to send troops to the border to curb drug trafficking. Later that day, Canadian Prime Minister Justin Trudeau announced in a tweet that Trump had also agreed to delay the tariffs on Canadian goods for at least 30 days after Trudeau agreed to heighten security at the border.
The tariffs will raise prices for numerous imported goods, including softwood lumber, aluminum and gypsum, among other building materials and household appliances imported from the three countries, economists say.
“I am not a big fan of tariffs,” said Robert Dietz, chief economist with the National Association of Home Builders said in an interview with Scotsman Guide last week.
Tariffs “are inflationary” and will also likely lead to “higher mortgage rates for longer,” Redfin economist Chen Zhao reported last week. She said the magnitude of the impact, though, will depend on several factors.
It “depends partly on how universal they are,” Zhao said. “The more goods and the more countries that are affected, the worse the inflation effect.”
Zhao noted that the Federal Reserve won’t necessarily raise short-term interest rates in response to a one-time increase in costs on goods from tariffs. The Fed, however, “will be more reluctant to continue their cutting cycle if broad-based tariffs are imposed, especially if the economy remains strong,” Zhao said.
Tariffs are expected to raise the cost of homebuilding. NAHB estimates that in 2023 about $13 billion, or 7% of all goods used in new residential construction were imported.
These include lumber from Canada, lime and gypsum from mostly Mexico and steel, aluminum and household appliances sourced from China, which are already subject to duties.
The tariffs “are expected to raise the cost of these materials, leading to higher expenses for home construction and renovations,” NAHB economists said in a recent report, noting the bottom line was a reduction of housing supply and higher costs to homebuyers.
“For most goods, the cost is passed on to the end-users, meaning consumers,” the report said. “Tariffs on building materials raise the cost of housing, and consumers end up paying for the tariffs in the form of higher home prices.”
NAHB has been calling for a reduction in an effective 14.5% duty on many Canadian softwood lumber products.
Of $8.5 billion worth of sawmill and wood products imported in 2023, nearly 70% of these imports came from Canada, NAHB said.
Lumber prices have been “volatile,” Dietz said last week in an interview. According to NAHB, prices for framing lumber were up 9.6% year over year in late January.
Lumber futures prices were up 3.5% from a month ago, NAHB reported.
Author
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Victor Whitman is a contributing writer for Scotsman Guide and a former editor of the publication’s commercial magazine.