Consumer Confidence, Building Materials, and Affordability Suffer
The housing market is a cornerstone of the U.S. economy, and it is facing a potential upheaval due to recently enacted and proposed tariffs on imported goods. While intended to bolster domestic industries, the fact is that tariffs could significantly impact building costs, home prices, mortgage rates, and consumer confidence. Let’s look at the relationship between tariffs and the housing market.
Increased Building Costs
One of the most immediate impacts of tariffs is the increase in the cost of building materials. Many components of new home construction, such as lumber, steel, aluminum, appliances, cabinetry, and flooring, are sourced from overseas.
Canadian lumber, for example, represents 30% of U.S. softwood imports. The administration has increased tariffs and duties on these products to 34.5%. These increases, along with those on other basic components such as steel and aluminum, will undoubtedly be passed on to homebuyers. The National Association of Home Builders estimates that the tariffs will add an average of $9,200 to the cost of each new home built.
As a result, some buyers may be priced out of the housing market, and builders may be reluctant to start projects, further tightening the already short housing supply. As of now, there are approximately 100 homes for sale in Folsom, slightly up from this time last year, but far below the last housing market correction, when there were 321 single-family homes on the market.
Current Homeowners
As new homes become more expensive, a natural consequence might be a shift in buyer demand towards existing homes. This, in turn, would increase competition for available homes, driving up prices. That could be good for sellers.
On the other hand, homeowners considering renovations may also face higher costs for building materials, so replacing flooring, appliances, fixtures, decking, and trim can affect their decision-making, and they may not be willing to do updates or other improvements prior to selling.
Dampened Consumer Confidence
The Conference Board reported that consumer confidence in March dropped to its lowest level in 4 years, and it is expected to drop even further in April. When confidence fades, consumers tend to pull back from big-ticket purchases.
We haven’t seen a wave of cancellations in this area yet, but Yahoo Finance published an article stating that tariff-spooked homebuyers are already backing out of deals.
A pull-back from buyers may also cause sellers to stay put, and with an estimated 73% of owners with mortgages sitting below 5%, they can afford to, and again, could further depress the housing supply.
Mortgage Rates
Mortgage rates have been fluctuating, and currently, the 30-year fixed is down slightly (average 6.8%), but the impact of tariffs can indirectly influence mortgage rates through their effect on inflation.
If tariffs lead to increased inflation, central banks may respond by raising interest rates to curb inflationary pressures.
And so…
Tariffs present a complex challenge to the housing market. The increase in building costs is likely to drive up the prices of new homes, and if the demand shifts towards existing homes, prices could increase there as well. Lower consumer confidence due to rising costs and economic uncertainty could further complicate the market, while mortgage rates add another layer of concern.
Things seem to be changing day-to-day, so it’s important not to hit the panic button just yet.
My advice is almost always, “If you need a house and can afford to buy one, do so. If you have options and don’t want to buy, don’t.” For sellers, there’s no time like the present. If you’ve been waiting for the right time, this might be it.
Any questions? Drop me a line. Steve Heard – 916 718 9577 – [email address removed] – DRE#01368503 – EXP Realty of Northern California, Inc.