“Uncertainty” is the buzzword for homebuilders as they prepare for higher prices on imported building supplies in an age of tariffs.
The Trump administration’s tariffs on imported goods from Canada, China and Mexico, some of which have already taken effect, are raising prices for materials used in single-family and multifamily home-building.
Tariffs are a tax a government charges an importer for items bought from another country. The importer often adds that cost to the price the consumer pays for the imported product. The goal of a tariff is to make domestic production and purchasing the lower-cost alternative.
The National Association of Home Builders projected that current tariffs could raise the cost to build a single-family house in the United States $7,500 to $10,000. If homebuilders push that additional cost onto homebuyers, the current U.S. housing slump might worsen.
Housing affordability is already a challenge, and the average age of a first-time homebuyer is at an all-time high of 38. The NAHB found that 100.6 million Americans are priced out of the housing market. An increase of $1,000 in the median price of new homes would price an additional 115,000 households out of the market.
“That starts to give [homebuilders] pause about how much is able to be passed through, so we may see erosion of margins as a result of that, and we still have to run a viable business,” said Peter Logan, chief operating officer for Indianapolis-based Arbor Homes, the second-busiest homebuilder in the Indianapolis area.
Steve Pittman, CEO of Zionsville-based Pittman Partners Inc., said he is keeping an eye on the prices of lumber, steel, aluminum, solid surfaces, light fixtures and electrical supplies.
Pittman Partners is building a residential and commercial development called The Farm at the intersection of U.S. 421 and Sycamore Street in Zionsville. The first phase of construction is nearly complete, but Pittman said he is concerned about what tariffs could mean for the second phase, still being planned.
“As businesspeople and human beings, we don’t like uncertainty,” Pittman said. “We all want as much certainty as we can get.”
Kelli Lawrence, CEO of Indianapolis-based builder Onyx+East, said conjecture is rampant right now because homebuilders are not yet seeing the true impact of tariffs, which she predicted will be significant.
Builders’ margins will tighten, and consumers will feel the pain, she said.
“I think those are going to be the two outcomes if we see these costs come to fruition and we can’t offset them with savings in other product categories,” Lawrence said.
Import-heavy industry
The National Association of Home Builders estimated in a report that $204 billion of goods were used in the construction of single-family and multifamily housing last year. About $14 billion of those goods were imported, meaning approximately 7% of all goods used in new residential construction originated from outside the United States.
Home-building supplies that could be impacted by tariffs include lumber from Canada, appliances and gypsum used for drywall from Mexico, flooring from China and HVAC condenser units from China and Mexico.
Of the $8.2 billion worth of sawmill and wood products imported in 2024, nearly 72% ($5.9 billion worth) came from Canada. The U.S. imported $481 million worth of lime and gypsum products in 2024, with 74% of those originating in Mexico, according to the NAHB.
On March 4, President Donald Trump placed 25% tariffs on some imports from Canada and Mexico. However, two days later, he abruptly put those on hold until April 2. Twenty-percent tariffs on Chinese imports are in effect. And 25% tariffs on all steel and aluminum imports started March 12.
Matt Saunders, senior vice president of building products research for Los Angeles-based John Burns Research & Consulting, said homebuilders are looking for clarity on what products will cost more, especially following Trump’s walk-back of tariffs in early March.
“Uncertainty does have a real cost,” Saunders said. “It impacts the ability to plan for both builders as well as households.”
Lumber concerns
The tariffs on Canadian and Mexican goods that are scheduled to go into effect next week are expected to raise the cost of imported construction materials $3 billion, according to the NAHB. The cost of building supplies has increased 34% since December 2020, even before tariffs were considered.
A 25% tariff on Canadian products, which includes softwood lumber used by the U.S. homebuilding industry, would be in addition to an earlier 14.5% tariff imposed by the U.S. Department of Commerce. That means tariffs on Canadian lumber will increase to 39.5% next month if they go into effect as scheduled.
The NAHB also noted that the Commerce Department said it plans to double the original 14.5% tariff rate later this year, so the overall tariff rate on Canadian softwood lumber could pass 50%.
Although the Trump administration hopes its tariff moves will increase domestic production, the NAHB report said U.S. sawmills do not currently have the capacity to meet domestic lumber demand.
“So NAHB believes that any move in the short term to add tariffs or hinder the flow of lumber from Canada will only harm housing affordability,” the report said.
Lawrence said homebuilders are worried that demand will increase prices for domestic lumber.
“Lumber is the one that we’re all watching most closely just because of the outsized impact it has on the overall cost of housing,” Lawrence said.
Another analysis by John Burns Research & Consulting estimated the cost of building materials will increase an average of 6.6% this year. It predicted the highest increase for dimensional lumber (11%), along with significant increases for wood panels (9%), trusses (8%), engineered wood product (7%) and wallboard (7%).
Saunders said the building supplies market could experience stagflation, an economic condition characterized by high inflation and slow growth, if prices increase rapidly during a time of soft demand for new housing and building products.
“In this market, builders don’t have the pricing power, in our view, to fully pass on this cost, so what we’re watching very carefully is what that does to builder margins,” Saunders said.
Logan said it is difficult for homebuilders to prepare when tariffs are announced and then delayed, as happened early this month. On March 4, lumber futures increased to $658.71 per thousand board feet, the highest in more than two years.
“It makes it very difficult because with the uncertainty and the economic volatility, it becomes very difficult to predict what your costs are going to be,” he said.
Gathering supply
Some homebuilders are preparing now by increasing their supply of building products before the tariff impacts hit.
Logan said homebuilders are looking to forward-purchase lumber, examine how much can be sourced domestically and determine the state of the supply chain. During the pandemic, he said, Arbor Homes forward-purchased garage doors and PVC pipe for plumbing.
“There’s a number of different avenues to which we need to identify what our options are, and it’s a moving target right now,” he said. “You’re just trying to hedge your bets, and nobody really has a crystal ball at the moment.”
Joe Cates, vice president of national purchasing and operations for Fort Mitchell, Kentucky-based Drees Homes, said his company is not stockpiling supplies, but many of Drees’ manufacturing partners are doing so in advance of next week’s tariffs.
“The newly proposed tariffs on imports from Canada and Mexico have not yet had a significant impact on our operations,” Cates said. “However, should these tariffs be fully implemented, we anticipate a broad range of products will be affected.”
Two complications with forward-purchasing supplies is that companies first need to determine if they need to pay out-of-pocket or if financing is available, then they need to know where they can put the surplus materials.
Lawrence said a large homebuilder might have a warehouse to store excess materials, but a smaller company might not.
“I don’t think most small builders have enough area for large material storage, so you’re paying someone to store it, whether you’re finding a facility or you’re paying your supplier to store it, but they may not have the space, either,” Lawrence said. “When you think of the cost of storage, is that … as expensive as paying the tariff, if that comes into effect?”
In a trade war, Saunders said, smaller builders will likely be the losers.
“[Large builders] have the authority to better negotiate deals in terms of their costs,” he said. “There’s likely going to be a larger impact on smaller builders in terms of what’s going to happen with margin. Big builders are likely to stay ahead in this environment.”
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