How Tariffs Could Continue to Affect Real Estate in 2025

This week on the Breakdown, we discuss the current status of tariffs in the United States and their potential effects on the U.S. housing market and real estate more generally. We’ll take a close look at what’s changed since the beginning of the year, how tariffs could impact real estate further, and what to expect moving forward in 2025.

A Strained Housing Market and 2025’s Predicted Construction Boom 

In June, we wrote about the 2025 construction boom that was expected to alleviate the major national housing shortage in the U.S. (haven’t read it yet? Take a look). With the housing deficit reaching 4.7 million homes in 2023, according to a new Zillow report, building new homes at affordable prices has become an almost dire priority, and the predicted increase in construction around the country was expected to lower this deficit.

If you’ve been paying attention to national news, though, you may have heard one word potentially standing in the way of this growth: Tariffs. You may have heard the term being thrown around in confusing headlines that never seem to stop changing—and they’ve probably changed again by the time you’re reading this—regarding increased tariff rates being imposed on a laundry list of countries.

There is growing concern about the potential effects of tariffs on the already strained housing market. Many economists and real estate experts are reporting new predictions for the second half of 2025 that warn homebuyers to brace for higher prices and fewer housing options—but why might tariffs contribute to a downturn in construction when the opposite was expected just months ago?

We’ll address this, but first, let’s break down exactly what tariffs are and how they work.

What Are Tariffs? 

When analyzing the current tariffs and their potential effects on the housing market, it’s important to understand what tariffs do and why they are imposed. In simple terms, a tariff is a tax imposed by a country on another country’s imported goods and services, usually to increase revenue, gain leverage, or influence the country in some way. By taxing the importers and increasing the cost of importing goods, domestic consumers are theoretically less likely to purchase the goods in question; however, if the consumer continues to choose the imported goods, the tariff can essentially lower profits for domestic companies or increase prices for the average buyer.

Tariffs have been a practice for hundreds of years and have been debated by economists for just as long. While they can produce substantial revenue and ultimately open communication between countries for trade or other global issues, they typically lead to trade wars and disputes between the countries involved and often push taxes directly onto domestic consumers, garnering criticism despite the possible benefits.

In this case, President Trump began imposing 2025 tariffs to influence countries to stop the influx of immigrants and drugs like fentanyl entering the United States as well as promote domestic production of goods and services. As countries have responded with reciprocal tariffs on the U.S., President Trump has raised tariff rates further, even as recently as July 9th when he sent letters to over a dozen countries changing (and mostly increasing) their rates.

How Tariffs Could Change the Housing Market 

Obviously, the United States isn’t importing entire newly built homes from other countries—so why do experts predict an increase on the price of houses under the new tariff policies? Why would these duties affect American homebuyers if the homes are built in America?

Tariff Impact on Materials 

The answer lies heavily in the materials used to build the houses. While the U.S. does use domestic materials, we also rely on imported goods from other countries in the construction process, and as costs to import these materials increase due to tariffs, pricing on new homes will likely increase as well.

In a recent interview with National Mortgage News, the NAHB senior vice president Robert Deitz stated that after asking builders about cost increases on building materials, “the impact was about $11,000 per single family home.” Additionally, he referenced an NAHB/Wells Fargo survey from May which reported that an overwhelming 78% of builders were experiencing trouble pricing their homes due to the tariff-lead housing strain.

So, what materials are causing such an economic shakeup in the real estate industry? A few of the biggest culprits are Canadian softwood lumber, used in many single family homes, and both steel and aluminum from China, two materials that have a wide range of uses like siding, roofing, columns, and gutters. Canadian lumber and gypsum from Mexico were both in the hot seat for increased tariff rates, but the NAHB advocated to exempt both vital building materials from further tariffs (though lumber still sits at 14.5%).

Below is a table of these materials and their current tariff rates imposed by the U.S.:

Material	Tariff Rate
Lumber (Canada)	14.5% (was almost tripled in April)
Steel (China)	50%
Aluminum (China)	50%

With tariff rates high and threatening to rise without countries’ quick trade arrangements with the United States, the effects of duties and increased housing prices are already being seen through slower economic growth and slower construction as demand for housing decreases due to costs.

For instance, Ken Simonson, a chief economist of the Associated General Contractors of America (AGC), said in a recent press release that “uncertainty about tariffs, tax rates and labor availability are making it hard for many developers to risk moving forward with planned construction projects.” This comment comes as a trend in May’s monthly U.S. Census Bureau report showed lower construction spending for four consecutive months, dropping the year-over-year decline to 3.5%.

With fewer buyers feeling antsy to close on a new home and fewer home builders looking to build, it only makes sense that the market may slow down along with economic growth in the U.S. Putting the tariffs currently in effect aside, the uncertainty hanging over the housing market of what’s to come may slow the momentum of the real estate landscape, harming economic growth and making the market more unstable.

Tariff Impact on Mortgages 

Uncertainty doesn’t just factor into home pricing, though. With tariff policies ever-changing, the impact on the greater U.S. economy could have direct effects on mortgage rates, and economists have several theories on the future of mortgage rates depending on what direction the country’s economy heads toward.

On one hand, if tariffs push inflation higher, mortgage rates could soar up to 10%, according to Laurence Kotlikoff, a Boston University economics professor. If inflation rises as it has in recent years, the Federal Reserve could reverse or stop cuts to their policy rates, which would keep mortgage rates high for homebuyers across the country.

On the other hand, though, if tariffs were to push the U.S. into a recession, mortgage rates could drop. With less demand for housing and lower rates of economic growth, mortgage financing during a recession would likely decrease, causing mortgage rates to go down as well.

In the face of uncertainty, many homebuyers, renters, landlords, and builders may feel like the only thing left to do is hold their breath and wait. While there isn’t much the average consumer can do about tariffs and the state of the housing market, there are good things to keep an eye on, which we’ll touch on shortly.

Hope for the 2025 Housing Landscape 

While the potential negative effects of tariffs may seem like a barrier to homebuying, it isn’t all doom and gloom. There is still hope for the housing landscape in the latter half of 2025, beginning with extension to the pause on some U.S. tariff policies.

In early April, Trump announced a 90-day pause on proposed tariff rates for many countries that would allow more time to negotiate trade deals. This pause gave breathing room to both American consumers and affected countries but was set to expire on July 9th. Instead of allowing these tariffs to go into effect, Trump announced on the 9th that he would be extending the deadline to August 1st to allow more time to negotiate and agree on deals that would improve trade relations between the U.S. and affected countries.

The extension on the tariff pause has stopped prices on many imported goods in the U.S., including housing materials, from potentially skyrocketing, but it has also offered countries more time to come to the table to negotiate better deals that may mutually lower tariff rates and keep housing affordable for homebuyers and renters alike.

One of the countries resuming talks with the U.S. is Canada, with ambassador Kirsten Hillman recently announcing Canada’s intention to be exempt from all tariffs moving forward and her confidence that a deal could be made. If trade negotiations go well between Canada and the U.S. and a deal is finalized, other countries may open a line of communication, hopefully bringing an end to the complicated and aggressive trade disputes.

What’s Next for Homebuyers? 

Though widespread tariffs were enacted several months ago, we have yet to see the long-term, major effects they’ll have on the housing market. The rates being imposed on countries globally are significantly higher than ever before, so tariffs, along with other economic factors, could push the housing landscape in a variety of directions. With their unpredictability and unprecedented nature, it’s difficult for experts to make a confident guess as to what’s next for both homebuyers and sellers.

It’s possible that homes could become more expensive through the latter half of 2025, but by the time you’re reading this, directives surrounding tariffs from the current presidential administration may have changed completely (and will likely continue to). No matter where the housing market heads next, we’ll be following its path and keeping you up to date on all its important changes as the year progresses.