US housing stocks are having a hard time this year amidst higher tariffs the Trump administration has announced on the likes of Canada and Mexico.
Washington relies significantly on foreign imports for materials essential for home construction. These include cement, aluminum, steel, wood products, and even some appliances.
As a result, the cost of building a house will likely increase materially in the wake of Trump tariffs, according to a recent report from CoreLogic.
That’s part of the reason why the iShares US Home Construction exchange-trade fund (ETF) has lost nearly 12% since late January.
Canada and Mexico export two key home construction materials
In particular, the US relies on Canada and Mexico for two essential home construction materials: gypsum products including lime and softwood lumber.
The world’s largest economy imports nearly 70% of the softwood lumber from Canada while 71% of the gypsum products it requires come from Mexico.
“Even incremental increases in the cost of materials, labour, and equipment make it that much more difficult to build a home profitably,” according to CoreLogic’s executive Pete Carroll.
Trump tariffs will make it significantly more difficult for the US to close the critical gap in housing supply, he added in a statement on Thursday.
US home prices could increase by up to $22,000 in 2025
All in all, the information services provider expects Trump tariffs to increase construction costs by up to 6% over the next 12 months.
Such an increase will raise sticker prices on new homes by $17,000 to $22,000, as per a CoreLogic estimate.
That’s significant considering the average price of building a home in the US already sits at a whopping $422,000.
US housing stocks are seeing pressure this year as tariffs and the related increase in construction costs could hurt affordability and prove to be a menace for the first-time homebuyers in 2025.
Investors should note, however, that homebuilders are broadly known to be dividend stocks.
US continues to grapple with a housing shortage
What’s also worth mentioning is that Trump tariffs do not paint a rosy picture for construction materials that are produced within the United States either.
Recent data indicates that “a rush on domestic materials would overwhelm current production,” and may lead to supply shortages and higher prices over the medium to long term, according to the CoreLogic report.
And “as builders pass extra costs on to homebuyers, housing will become less affordable” in the US, said Matt Saunders of John Burns Research & Consulting in a recent interview with CNBC.
Note that housing shortage in the United States is a significant concern that has built over decades. The country currently faces a deficit of about 4.5 million homes, as demand continues to outpace supply.
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