New tariffs are being implemented on steel and aluminum imports. Each is being taxed at 25% and 10% respectively. 90% of aluminum used in the United States comes from other countries. The new tariffs will without a doubt affect the prices of many everyday items. This includes the home building market.

Which type of home will get hit hardest?

In June the largest manufacturer of nails in the United States laid off more than 10% of its workers due to increased steel costs. The company had previously raised its prices because of increased costs, blamed on the tariff on imported steel, and that resulted in a 50% plunge in orders.

Last year a 20.83% tariff was imposed on Canadian softwood lumber. The immediate effect was that prices of lumber in the United States rose by almost 15%. Aaron Terrazas, the senior economist at Zillow, said, “Those costs have largely been passed along to consumers, and you’ve seen new home prices touch new highs.” Explaining further he said, “It added $6,000 to $10,000 to the cost of a median-priced home.”

Lumber costs typically represent about one-third the cost of building a new home.

The new tariffs on steel and aluminum will likely mean higher costs of those materials in the United States, and it will have an impact on single-family home prices. Economists predict that the effect will be in the 0.05% to 1% range because new single-family homes are made of more wood than steel and aluminum.

Apartment buildings and condominiums will get hit the hardest. The increase in aluminum and steel may ultimately lead to higher rent. Terrazas said, “You’ll see more price pressure in the multifamily space.”

Home Building Activity

In July, housing starts missed the market expectation. They rose in the Midwest and South but dropped in the Northeast and West.

The number of building permits issued was up in July but as the Federal Reserve Bank states, “Housing permits don’t always equal housing starts. “

Builders cannot keep up with demand, especially now at the cost of materials. This is creating a shortage of affordable housing. The costs that are going to be incurred by the home builders can end up being passed on to the home buyers. There is fierce competition, and bidding wars and becoming more and more frequent. This is why a tariff causing home price increases may not be ideal for the market at this time.

No one is certain how badly these tariffs will upset the home building market, but it does not look favorable. The market that was struggling already is going to have a new burden to face.