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How Could Import Tariffs Affect Housing?

President Donald J. Trump recently announced a plan to impose tariffs on imported steel and aluminum. The announcement was big news simply as a major policy initiative by the administration. In terms of the financial industry, though, it’s important to look at the potentially significant effect on the U.S. housing industry and the American consumer.

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Raw Materials Costs to Rise

Tariffs are duties imposed on products. As such, they generally raise the prices of anything made from those products. Last spring, for example, President trump imposed a set of tariffs on lumber imported from Canada. Bloomberg data indicate that this set of tariffs has caused lumber prices in the U.S. to rise 31%.

The metal tariffs announced might cause prices for steel made overseas to climb 25% and for overseas aluminum prices to rise 10%. Both materials are used in housing, of course, and these price hikes could come on top of the steep increase in Canadian lumber prices.

As a result, housing industry groups were unanimous in voicing opposition to the Trump administration’s plan. The National Association of Homebuilders noted that rising costs of steel would hike constructions costs, and also observed that many raw materials are also near record prices.

Several industry leaders pointed out that home prices in many areas of the country are already extremely high. Many potential buyers, especially new home buyers, are priced out of urban areas like New York City, Boston, and San Francisco.

The administration focused on small products. Wilbur Ross, the Commerce Secretary, used Campbell Soup as an example of consumer price increases, pointing out that more expensive imported metal would only hike chicken soup prices $0.01 or less.

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Home Prices Likely to Climb

But homes, of course, are larger.

Some housing industry veterans pointed out that single-family homes use more wood than steel or aluminum, so that the impact on that cluster of homes may not be highly significant. Even so, though, estimates are that single-family homes may become up to $10,000 more expensive.

Multifamily dwellings like condominiums or apartment buildings do use more structural metal. The average cost of such a unit might climb approximately $478, according to the NAHB.

Housing Lenders Might Be Impacted

Will housing lenders be affected? They could be.

Consumers are already grappling with rising housing costs on several fronts. Interest rates have been increasing since the end of 2016, making mortgages more expensive to service. Real estate markets in many areas have extremely high prices by historical standards. The tax plan signed into law by President Trump in late 2017 gives some tax relief but also eliminates the property tax deduction above a certain level. Many observers believe that the resultant loss of the property tax deduction may make home ownership less attractive.

In addition, the interest rate environment, new tax law changes, and the tariffs all contribute to uncertainty. Homeowners, as investors, tend not to like uncertainty.

All these factors, either singly or in combination, may result in home buying becoming less attractive. A drop in home buying is not good news for mortgage or other lenders.

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