In what is being characterized as a dangerously escalating trade war, President Trump has announced he is “moving immediately to impose 10% tariffs on an additional $200 billion worth of Chinese imports, including $10 billion of goods used by the home building industry. This 10% levy represents a $1 billion tax increase on residential construction. Making matters even worse, the tax hike will rise to $2.5 billion on Jan. 1 when the president said the tariff rate will jump to 25% if the two nations have not resolved their differences by year end.”
NAHB Chairman Randy Noel put out a strongly worded statement decrying the move and outlining the impact the tariffs are expected to have on the housing market. “With America facing a housing affordability crisis, it is counterproductive to enact policies that will needlessly drive up the cost of housing. We respectfully urge the administration to change course and work to resolve these trade disputes in a manner that won’t harm American businesses and consumers.”
Pushed by a rampant lack of inventory, high prices have made purchasing a home difficult in many areas of the country and for a large portion of would-be buyers. Yet, the market has remained strong. Will this newest challenge be the hit that reverses its course? That’s what many experts fear.
“New homes could get more expensive thanks to new steel, lumber tariffs,” said Hanover Mortgage Company. “Lumber tariffs added $6,000 to $10,000 to the cost of a median-priced home” after the U.S. placed a tariff on Canadian lumber; Realtor.com said about a third of “softwood lumber used in new-home construction” comes from Canada. “But the cost of new homes isn’t the only way tariffs have an effect on single-family housing. The Canadian lumber duty was also projected to reduce investment in single-family structures by $1.1 billion, according to the NAHB. If a similar reduction were to now occur because of these new tariffs, that could slow new home building. Inventory constraints could be further exacerbated and fuel even more competition for homes.”
In addition, “The planned tariffs would tack on 25% to the cost of steel, used in home foundations, floors, and high-rise construction, and 10% for aluminum from foreign suppliers, effectively increasing its price,” they said. “This will increase the cost of construction on residential and commercial projects.”
The economic impact is also expected to be felt in other areas for Americans, raising daily costs and further harming buying power. “The tariffs are aimed at hurting China, but they could hamper the American economy and bring pain for consumers,” said the New York Times. “Unlike the first round of tariffs, which were intended to minimize the impact on American consumers, this wave could raise prices on everyday products including electronics, food, tools and housewares.”
Then there is the potential impact on interest rates. If Chinese interest in US Treasury securities wanes, causing those rates to rise, it will likely also cause a spike in mortgage rates. Economists are further troubled by historical precedent that saw a negative impact on the economy in general. Investor’s Business Daily referenced both the Smoot-Hawley tariffs (and how much blame they “deserve for the Great Depression”) and the Reciprocal Tariff Act (and “how much credit President Franklin Roosevelt deserves for…putting the U.S. on a path to lower tariffs”). Put simply, they said, “the stock market doesn’t like tariffs, and if Trump pushes it too far, he could sink the stock market.”