Will tariffs raise house prices and mortgage rates even though we are in a buyer’s market? Most likely.
On April 2, President Donald Trump announced a broad set of tariffs, including a 10% baseline tariff on all imports and additional tariffs on specific countries. This move sent shockwaves through the housing market, raising questions about what comes next.
Key takeaways
Tariffs are taxes on imported goods to make foreign products more expensive and encourage people to buy locally.
A tariff is a tax that a government imposes on goods and services imported from another country. In this case, the U.S. would impose a tariff on imports from Canada, and Canada would, in return, impose its tariff on imports from the U.S.
As construction costs rise due to tariffs, home prices may increase, and mortgage rates could follow suit.
With tariffs targeting imported materials such as steel and lumber, builders are facing rising costs, which are quickly passed on to buyers in the form of higher home prices. At the same time, inflation resulting from these tariffs could drive mortgage rates higher, making homeownership even less affordable for many.
For homebuyers, investors, and real estate professionals, the stakes are high. As tariffs continue to shape the market, understanding the impact on mortgage rates and housing affordability is crucial, now more than ever. I
What are tariffs, and why do they matter?
Governments impose tariffs, which are taxes on imported goods, to make foreign products more expensive and give local businesses a competitive advantage. The intention is to encourage consumers to buy domestic products instead of cheaper imported alternatives.
But here’s the catch: this price increase can have a ripple effect that reaches beyond the retailer and into your wallet, especially when it comes to homebuilding materials. For homebuyers and investors, this means paying more for construction costs and essential materials, such as steel, lumber, and even appliances.
As these costs rise, so do the prices of new homes, making it harder for potential buyers to afford their dream home. Even investors can feel the pinch, as higher construction expenses can reduce potential profits on new developments.
How tariffs could affect mortgage rates
Tariffs can impact mortgage rates in various ways, presenting both opportunities and challenges for homebuyers and investors.
Implications of tariffs
The impact of the tariffs on the housing sector has been multifaceted. While some mortgage rates initially dipped following Trump’s announcement, the overall uncertainty has caused homebuyers and investors to be more cautious. This hesitation has slowed home sales and led to a more reserved approach in the market.
Key implications for homebuyers and investors
Fewer affordable options for homebuyers: As construction costs rise, builders are increasing home prices to offset the higher expenses. This could lead to fewer options for buyers.
Delayed purchases: As the cost of living increases, many homebuyers may delay purchasing, which can contribute to market stagnation and reduced inventory.
Impact on new homes: For investors, the effects of tariffs extend beyond construction costs. While higher material prices strain new developments, there’s also the risk of delayed projects, as builders may struggle to secure affordable supplies.
Global supply chain disruptions: If tariffs disrupt global supply chains, the cost of goods could rise, impacting everything from property maintenance to tenant amenities. This broader economic shift could make it more challenging for investors to maintain consistent cash flow and achieve long-term returns.
How homebuyers and investors can navigate the challenges of tariffs in the housing market
As tariffs continue to rise and potentially extend through 2026 and beyond, the housing market may face increased pressure, particularly with higher construction costs and mortgage rates. Here are some strategies to minimize the impact of tariffs on your homebuying and investing plans:
Stay informed on policy changes: Monitor trade policies and tariffs to anticipate market shifts and adjust your strategies accordingly.
Lock in mortgage rates early: With potential interest rate hikes due to inflation, securing a fixed-rate mortgage can save you money should inflation persist in the long term.
Consider alternative construction materials: To keep construction costs down, utilize domestically sourced materials that are exempt from tariffs or import duties.
Buy Canadian.
Note: I compiled the above information from writer Julia del Rosario and a comprehensive explanation from the Bank of Nova Scotia, titled “Understanding Tariffs.”