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How Tariffs Are Expected to Impact New Home Construction and Sales

Written by Posted On Sunday, 06 April 2025 04:52
How Tariffs Are Expected to Impact New Home Construction and Sales

The recent implementation of new tariffs on imported goods is projected to significantly impact the U.S. housing market, particularly new home construction. These tariffs have raised the effective tax rate on all imports to 26%, up from 2.3%, affecting a broad range of construction materials.

Impact on New Home Construction Costs

The National Association of Home Builders (NAHB) estimates that these tariffs will increase the cost of building a new home by approximately $9,200. This increase stems from higher imported steel, aluminum, and appliance prices. Although Canadian lumber comprises 72% of U.S. imported lumber and was exempted from the new tariffs, it still carries a 14.5% duty from previous regulations. Other critical imports like fixtures and flooring from countries such as China, Malaysia, and Indonesia face steep tariffs, with rates as high as 54%, 24%, and 32%, respectively. These increased costs are likely to be passed on to homebuyers, potentially exacerbating affordability challenges, especially in states with a higher proportion of new constructions like Idaho, North Carolina, Delaware, Utah, and Nebraska.

Homebuilders' Strategies to Attract Buyers

In response to rising construction costs and potential declines in buyer demand, homebuilders are adopting several strategies to attract home shoppers:

  1. Price Reductions and Incentives: Some builders are reducing home prices and offering various incentives to stimulate sales. For instance, 30% of builders reduced home prices in March, up from 26% in February, with an average price reduction of 5%. Additionally, 59% of builders are employing sales incentives to attract buyers.
  2. Building Smaller Homes: To offset increased material costs, some builders are constructing smaller homes that require fewer resources and can be offered at lower prices. This approach aims to maintain affordability for buyers while managing construction expenses.
  3. Exploring Alternative Materials and Suppliers: Builders are seeking alternative materials and suppliers to mitigate the impact of tariffs. This includes sourcing domestically produced materials or exploring new supply chains to reduce reliance on heavily tariffed imports.
  4. Advocating for Policy Changes: The NAHB is actively working to roll back tariffs on building materials, boost sawmill production, and increase the domestic timber supply from federally owned lands in an environmentally responsible manner. These efforts aim to address the root causes of rising construction costs and improve housing affordability.

How Renters Will Be Affected

The impact of higher home construction costs is not limited to homebuyers—renters will also feel the effects. As the cost of building new homes rises, so does the cost of constructing new apartment buildings and rental properties. This could lead to higher rents as developers pass increased costs on to tenants.

Additionally, as higher home prices make homeownership less attainable, more people may remain in the rental market for extended periods, driving up demand for rental units. Increased demand and limited supply often result in rising rental rates, making affordability a growing concern for renters nationwide.

In cities where rental housing is already in short supply, these effects may be even more pronounced, potentially exacerbating housing shortages and homelessness. Policymakers and housing advocates may need to explore solutions such as rent control measures, incentives for affordable housing developments, and zoning reforms to help mitigate the impact on renters.

Potential Silver Lining

While the tariffs are expected to raise construction costs, they may also lead to lower mortgage rates. Economic uncertainty and slowed growth resulting from the tariffs could cause investors to seek safer assets like the 10-year Treasury note, potentially leading to a decrease in its yield and, consequently, 30-year mortgage rates. Recently, mortgage rates hit their lowest point of 2025, at around 6.63%, which could enhance home affordability for buyers. However, rising home prices and stagnant incomes may offset this potential benefit.

In summary, the new tariffs are poised to increase construction costs for new homes, prompting builders to adopt various strategies to attract buyers and maintain affordability. The overall impact on the housing market will depend on how these factors balance out in the coming months.

Authors' Opinion

Home builders need to sharpen their Realtor database and start capturing how long the Realtor has been in business. The longer they have been in business, the more likely they are to have a strong referral base of prospects. Listing referrals represent owners with equity, and equity helps purchase new construction.

For years, we have suggested that homebuilders ask Realtors how long they have been licensed and write it on business cards used for prize drawings. We know that of the more than 6,000 Realtors who have taken our course, How to Build a New Homes Niche, forty percent have been in business between five and ten years, forty-six percent over ten years.

These are Realtors in for the long haul.

Not only do many of them represent sellers who need to sell a home, but the sellers have the equity to qualify for a new home mortgage.

"If I am a builder in today's market, I'm going to challenge my onsite team to focus on builder relationships with agents who have been licensed for a minimum of three years by asking them how long they have been licensed, what percentage of their sales are referrals, and more and to make sure that agent becomes an essential member of my broker network.  

On the other hand, we encourage our Certified New Home Brokers to ensure their NHCB initials are showing up in search engines because builders and new home shoppers are looking for trusted new home advisors.

"To know and not to do, is not to know." Author unknown. 

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David Fletcher, NHCB

David Fletcher, a retired Realtor, spent his entire 25-year career recruiting, training, and supervising Realtors to serve as full-time onsite agents for more than 50 communities listed by Fletcher to sell and market the builder/developers communities. His teams sold more than $3 billion in new homes and condominium inventory, mostly on the west coast of Florida. More than 6,000 Realtors have taken the course he wrote to show them how he did it. His real estate career began in St. Petersburg, FL, when the developer-client of his public relations firm purchased his company and named him Vice President of the American Housing and Development Corporation building Bay Island, the waterfront community in South Pasadena, FL, where he served for three years before opening his real estate brokerage specialing in new construction. Along the way, Fletcher wrote Condominium Sales and Listings, 226 pgs, was a featured speaker at a National Association of Realtors convention, Chaired the Sale and Marketing Council for the Florida Home Builders Association, and was given a key to the city of St. Petersburg by its Mayor, for his work on the city's economic development council.

https://www.newhomecobroker.com

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