Tariffs, home construction and affordability 

A new report estimates that if the proposed tariffs on Mexico and Canada go into effect, they will add 4-6% to the cost of building a home.

Trump threatened to impose 25% tariffs on the two countries, both key suppliers of essential building materials, starting on Feb. 4, but opted to delay implementation for at least 30 days. The administration's 10% tariff on Chinese goods is active, though it has been temporarily paused for small-value shipments.

Double-digit price increases — at least

After accounting for annual inflation, the overall cost of building materials could rise 10% over the next 12 months, according to CoreLogic. The study doesn't include the impact of the 25% tariffs on all imported steel and aluminum announced Monday, Feb. 10, but they would likely add to overall costs.

In addition to raw building materials, CoreLogic's analysis suggests that the price of household fixtures, such as appliances and cabinetry, could also increase by 10-20%.

That has led to concern that fewer homes will be built at a time when there's already a shortage of supply, adding to the affordability crisis.

"The economics are now upside down. Even incremental increases in the cost of materials, labor, and equipment make it that much more difficult to build a home profitably. This further disrupts efforts to close the critical gap in U.S. housing supply," Pete Carroll, CoreLogic's EVP of public policy and industry relations, said in the report.

"If we're going to create and restore homeownership opportunities for families, we need to fill in this single-family starter home segment that's missing," Carroll added.

For builders, cost-cutting will be key 

If the proposed tariffs are implemented and stay in place for an extended period of time, finding other ways to cut costs will be increasingly important, according to Robert Dietz, chief economist at the National Association of Home Builders.

"This is why regulatory reform that reduces the cost of land development, home construction and remodeling is now even more critical for improving housing attainability," Dietz said in a NAHB blog post. Those types of reforms are part of a larger, 10-point plan to address housing affordability released by the organization in January.

Dietz added that the current policies are providing both positive and negative risks to home builders in the months ahead. 

"This dual set of risks has been reflected in financial markets, with stocks valuing the focus on growth and efficiency but the bond market reflecting inflation and budget deficit concerns," Dietz said.

Buying US-made materials could also lead to price hikes

If imported materials become too pricey, builders may turn to domestic sources — but a sudden increase in demand for domestic materials could lead to supply chain bottlenecks, resulting in short-term price hikes — much like what happened during the pandemic, the report noted.

"It's still early, but we are seeing signs that price surges could appear in the current dynamic environment," said Jay Thies, CoreLogic's VP of pricing analysis and delivery. 

"Reconstruction and new development will be initially affected unequally. Reconstruction demand in the wake of the Los Angeles fires is likely to increase prices temporarily, but we are watching longer-term trends to determine how the supply chain will absorb tariffed inventory since there is a possibility that prices could track higher in the mid-term."

Not all building materials will be equally affected, however. Most roofing products, according to the report, are already produced in the U.S., and with the new administration signaling it wants to boost domestic oil production, the cost of raw goods for roofing materials might level off or slightly decline.