The homebuilding industry and economic experts are closely watching the latest tariff policies introduced by President Donald Trump, as they have the potential to significantly impact construction costs, supply chains, and overall market stability.
At a recent economic summit in Chicago, Lawrence Yun, Chief Economist for the National Association of REALTORS® (NAR), described Trump’s trade strategy as one that “thrives on unpredictability.” The past month alone has seen multiple tariff announcements—some enacted, others postponed or debated—leaving many in the housing and construction industries uncertain about what comes next.
The Tariffs: What’s Changing?
On February 4, 2025, a 10% tariff on all goods imported from China officially went into effect. While China is not a primary source of homebuilding materials, key products such as steel, aluminum, and home appliances were already subject to previous tariffs and will now face additional cost pressures.
Additionally, on February 10, an executive order raised tariffs on steel and aluminum to 25%, effective February 12. However, the biggest concern for the homebuilding industry stems from potential lumber tariffs. In 2024, about 30% of U.S. lumber was imported, with 85% of that coming from Canada. A proposed 25% tariff on Canadian and Mexican imports was temporarily delayed on February 3 amid ongoing negotiations.
Why Were the Canada and Mexico Tariffs Delayed?
The delay in imposing these tariffs is tied to broader trade and border security negotiations.
- Canada agreed to a $1.3 billion border security plan and additional measures to combat illegal drug trade.
- Mexico committed 10,000 National Guard members to bolster its northern border.
Although these agreements temporarily postponed tariffs, uncertainty lingers over whether they will be reinstated in the coming months.
The Impact on Homebuilder Confidence
The National Association of Home Builders (NAHB) initially praised the administration for prioritizing housing affordability and supply expansion. However, NAHB Chairman Carl Harris warns that tariffs on essential building materials work against those goals:
“More than 70% of the imports of two essential materials that homebuilders rely on—softwood lumber and gypsum (used for drywall)—come from Canada and Mexico. Tariffs on these materials drive up construction costs, discourage development, and ultimately push home prices higher.”
The impact is already visible:
- Lumber costs for a typical single-family home have risen to $30,000, a $13,000 increase since April 2020.
- A year ago, 36% of new homes nationwide were priced below $300,000. Today, that share has dropped to just 21%, making homeownership more challenging for first-time buyers.
- Homebuilder confidence fell to a five-month low in February, with declines in key industry indicators such as sales conditions, buyer traffic, and sales expectations.
- January housing starts declined by 9.8%, reflecting increasing caution among builders.
The U.S.-Canada Lumber Trade Battle: A Recurring Dispute
Trade tensions over lumber between the U.S. and Canada are not new. A key issue is the difference in stumpage fees—the cost required to harvest timber from government-owned land.
- In 2021, the Biden administration increased tariffs on Canadian softwood lumber from 8.99% to 17.9%.
- Trump’s 2025 executive order takes an even more aggressive stance, raising concerns about further cost increases.
- Canada’s lumber supply has already been strained by severe wildfires, beetle infestations, climate-related challenges, and environmental restrictions.
To counter these challenges, major Canadian lumber companies have increased investments in U.S.-based sawmills, particularly in the Southern states. For example, Southeastern Timber Products recently announced a $123.4 million expansion in Ackerman, Mississippi, to boost domestic production.
Despite these efforts, the question remains: Will tariffs push home prices even higher?
The Bigger Picture: Inflation and Economic Impact
Tariffs play a central role in Trump’s economic strategy, with his trade advisor Peter Navarro arguing that they will create “more stable and resilient supply chains” while reinforcing domestic manufacturing.
However, critics warn that tariffs may contribute to inflation. While Navarro dismisses these concerns, saying, “Tariffs do not cause inflation when imposed by the largest market in the world,” some economic indicators suggest otherwise:
- During Trump’s first term, inflation averaged 2.1% pre-pandemic.
- Today, inflation remains a top concern for the Federal Reserve, which is monitoring whether tariffs will drive consumer prices higher, especially for homebuilding materials.
- Federal Reserve Governor Christopher Waller has indicated that interest rates will remain steady for now but could be adjusted later in 2025 based on economic conditions.
What This Means for Atlanta’s Luxury Market
For Atlanta’s real estate market, these tariffs present both challenges and opportunities:
- New construction costs may rise, particularly for projects requiring imported materials.
- Resale homes may become more attractive to buyers seeking alternatives to costly new builds.
- Custom home builders and developers may need to adjust pricing strategies to reflect rising material costs.
- Investors and buyers should monitor economic conditions, as interest rates could shift in response to potential tariff-driven inflation.
Final Thoughts
Economic uncertainty is nothing new to real estate, but strategic decision-making can help navigate shifting market conditions. Tariffs have the potential to reshape supply chains, construction costs, and home prices, making it more critical than ever to work with experienced professionals who understand the nuances of the market.
For buyers, sellers, and investors, staying informed is key. By keeping a close eye on economic trends and policy changes, you can make more confident and strategic real estate decisions.