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US builders brace for tough times with US tariffs

Construction of new homes in the US plummeted in January as builders face a challenging financial environment to start and finish projects with high interest rates and uncertainty over tariffs that could increase costs for supplies. Source: wwnt Struggles increasing the nation’s housing supply have exacerbated an affordability crisis that has continue to spiral after the post-pandemic surge in sales. Median prices on existing homes have soared over US$400,000 over the last several years and monthly mortgage payments remain elevated with interest rates hovering around 7%. Inflation has hit the nation’s homebuilders that are facing increased costs for supplies and labour, making it more difficult for projects to turn a profit and minimizing incentive to start them. They are dealing with high rates from the Federal Reserve and uncertainty over what’s to come with the Trump administration’s aggressive tariff strategy that could put more upward pressure on prices. Housing starts, which measure the number of projects being started, plummeted in January. Overall starts declined 9.8% last month with drops of 8.4% for single-family homes and 13.5% for multifamily, which includes apartments and condos. “As mirrored in our latest builder survey, high construction costs, elevated mortgage rates and challenging housing affordability conditions are causing builders to approach the market with caution,” Carl Harris, chairman of the National Association of Home Builders, said in a release. “The uncertain policy environment in terms of a better regulatory climate and impending tariffs offers both upside and downside risks in the near-term.” Trump has not enacted some of the most expansive tariffs he suggested on the campaign trail but has still been aggressive with using them in his foreign trade policy. There is a 25% tariff on foreign steel and aluminium, a 10% increase to preexisting tariffs on all Chinese products and the White House is studying how to implement “reciprocal” tariffs to match levels other countries place on American goods. There is also potential for 25% tariffs on all Canadian and Mexican products, which could hit homebuilders especially hard. Trump delayed the implementation of the tariff earlier this month after Canada and Mexico agreed to ramp up border security operations but there is still a possibility they could go into effect at the end of the pause. “Home construction is particularly sensitive to trade policies, notably tariffs on essential materials like lumber and concrete,” said Emanuel Santa-Donato, SVP and chief market analyst at Tomo Mortgage. “Material prices are already a major factor in home affordability, so any additional increases could make it even harder for buyers, particularly in high-cost markets like the west coast, where builder sentiment is already weaker than in other regions.” Tariffs on Canada and Mexico were of particular concern to homebuilders and NAHB sent a letter to the administration asking it to put exemptions on building materials. “Imposing additional tariffs on these imports will lead to higher material costs, which will ultimately be passed on to home buyers in the form of increased housing prices. Further supply chain disruptions from increased tariffs coupled with increased demand for materials could also hinder rebuilding efforts in areas affected by natural disasters, which you have pledged to help rebuild as quickly as possible,” the organization said in a letter. It’s unclear whether the administration would be willing to introduce carve-outs in tariffs to help builders, though Trump has signed an executive order targeting housing affordability and promised to unlock more building through loosening regulations. The federal government has limited power to address the most burdensome regulations, which typically come from state and local governments in the form of zoning restrictions. “Exempting key building materials from tariffs especially high-demand items like lumber, steel, and concrete could help control construction costs and keep home prices more stable. Temporary tariff reductions or streamlined import processes could give builders some relief, ensuring that price spikes don’t unnecessarily slow production,” Santa-Donato said. “Keeping essential materials more affordable would help builders continue meeting housing demand without driving costs higher for homebuyers.” Uncertainty on tariffs and concerns about them further increasing prices comes as the housing industry is going through a prolonged slump due to elevated interest rates and issues with affordability. Home sales have slumped to lows not seen in 30 years with roughly 7% mortgage rates. Despite the drag on sales, home prices have continued to climb due to a limited supply available on the market. Existing homeowners are hesitant to put their homes on the market with higher rates than many were able to lock into during the pandemic and higher prices to purchase another, and higher costs are also slowing the sales of new homes.