The intensifying trade conflict between the U.S. and Canada is likely to affect lumber and softwood imports, causing challenges for American homebuilders and buyers. Recent trade talks didn’t prevent new tariffs on $20 billion of Canadian exports, leading Canada to impose retaliatory tariffs up to 50%. This includes goods like hockey sticks, clothing, wines, dairy products, and building materials like cement and plywood.

Canadian lumber is exempt from these latest tariffs but is subject to existing levies of around 35%. According to Joel Berner, a senior economist at Realtor.com, the tariffs on home construction materials like cabinets and plywood have a lesser effect compared to the uncertainty regarding future tariffs. This uncertainty adds pressure to the U.S. construction sector, struggling with increased costs and reduced demand due to the affordability crisis.

The National Association of Home Builders (NAHB) warns that these tariffs will increase housing costs and slow construction activity. Redfin’s chief economist, Daryl Fairweather, states that while mortgage rates are still crucial, tariffs have negatively impacted lumber prices. Should the Federal Reserve ease rates, it might offset tariff effects.

Tariff Impacts on Homebuilding

Building materials have surged by 40% since December 2020, per NAHB data, outpacing inflation. Tariffs from the previous year increased these costs and further hikes could worsen the situation for builders. The NAHB highlights a 5% increase in material costs, attributed partly to U.S.-Canada trade tensions. Aluminum and steel imports from Canada are also affected by a significant 50% tariff.

NAHB reports a 10% lumber tariff and 25% on kitchen cabinets. Canadian softwood lumber faces a 45% tariff, impacting the U.S. market. As a result, lumber imports have reached their lowest level since 2014. Section 338 tariffs heavily impact plywood, veneer, and engineered wood products, although Canada remains a vital supplier.

Developers might build fewer homes due to these increased costs, worsening the housing market’s scarcity. Berner notes the U.S. housing shortage at over 4 million homes. Building more homes is essential to address this, but tariff-related uncertainty makes project planning difficult. Fairweather mentions that underbuilding over the years exacerbates the housing shortage further.

Can Domestic Suppliers Compensate?

Experts suggest the U.S. cannot quickly replace Canadian materials. Daryl Fairweather explains that U.S. mills lack the capacity to cover a third of the lumber supply immediately. Building such capacity takes years and substantial investment. Additionally, domestic supply might not catch up with tariff disruptions anytime soon, leading to sustained higher costs.

Who Is Affected by the Tariffs?

First-time homebuyers face the biggest challenges, having already struggled with affordability issues post-pandemic. Fairweather notes they rely on new inventory for opportunities. Existing homeowners with low-rate mortgages are less impacted, while renovators bear the brunt of cost increases. Move-up buyers, seeking larger and more expensive homes, also face challenges.

Tariffs’ impacts vary nationwide. Fast-growing markets in the South and West, where construction is prevalent, feel the most pressure. Slower markets, leaning on home resales, experience a less intense impact. Nonetheless, regions like the Midwest and Northeast need more construction, facing higher price premiums for new homes. Berner concludes that new construction is critical in these areas.