Impacts of U.S.-Canada Trade War on Homebuilding
The escalating trade conflict between the U.S. and Canada is significantly affecting lumber and softwood imports, posing challenges to American homebuilders and buyers. Recent talks failed to halt new tariffs on $20 billion in Canadian exports to the U.S., leading Canada to retaliate with tariffs up to 50% on various goods starting September 8. Affected items include hockey sticks, clothing, wines, dairy products, and building materials like cement and plywood. These developments stem from Section 338 duties, although Canadian lumber faces a 35% tariff under previous levies.
Joel Berner, a senior economist at Realtor.com, highlighted that while some construction inputs such as cabinets and cement are impacted, the greater concern is uncertainty in tariff developments. The U.S. construction sector, already grappling with rising costs and a housing affordability crisis, faces additional pressure. The National Association of Home Builders (NAHB) explains that these tariffs will elevate housing costs and impede construction, affecting both builders and buyers.
The new tariffs are making a difficult situation worse, stated Daryl Fairweather, chief economist at Redfin. He emphasized that while mortgage rates matter more than trade policies, any relief from the Federal Reserve on rates could counterbalance tariff effects. However, building materials have seen a 40% price increase since December 2020, as reported by NAHB. These costs have outpaced inflation, fueled by tariffs from the previous year.
An NAHB spokesperson noted a 5% year-over-year increase in building material prices as of July, the highest since December 2022. Although not all rises are linked to U.S.-Canada trade relations, metal-based product costs such as siding and trim have climbed. High tariffs on aluminum and steel from Canada impact derivative home building products. Lumber imports to the U.S. are at their lowest since 2014, further affecting materials like plywood and engineered wood products.
Builders may reduce housing starts due to cost hikes, worsening the U.S. housing shortage. Berner estimates the shortage exceeds 4 million homes, requiring increased construction to address it, yet tariffs complicate planning. Years of underbuilding exacerbate the situation, Fairweather added, increasing competition for existing homes. The U.S. cannot immediately replace Canadian materials, as domestic mills lack the capacity to fill one-third of the country’s lumber supply.
Experts suggest it might take years to align domestic supply with import disruption, maintaining higher costs as the standard. First-time homebuyers face the brunt of new tariffs, as reduced affordability limits access to new inventory. Existing homeowners with low mortgage rates are somewhat shielded, while renovators bear immediate cost increases. Move-up buyers also face challenges as they seek larger, newer homes, limiting opportunities for first-time buyers of starter homes.
The impact of tariffs varies by region. Fast-growing markets in the South and West, reliant on new construction, will experience significant effects. Conversely, slower-growing areas focusing on resales will see less impact. The Midwest and Northeast, where construction demand is high, will also feel effects due to their lower new construction levels and higher price premiums.