By Matt Pfrommer, Princeton Mortgage Wholesale
The Secretary of Commerce, Wilbur Ross, let everyone know on Friday that the new steel tariffs would only increase the cost of a can of soup by $0.006, saying “So who in the word is going to be too bothered by six-tenths of a cent?” The cost of our Campbells tomato soup may remain relatively unchanged, but new tariffs on steel and aluminum could have huge impacts to the housing industry that reach much farther than your lunch.
The average, single family home does not generally get built with large quantities of steel or aluminum, but commercial buildings and apartment complexes are framed with steel. The chairman of NAHB (National Association of Home Builders) made a statement last week regarding the new tariffs put in place and said that these tariffs would “hurt consumers and harm housing affordability.” The new tariffs on steel and aluminum are the second round of hits to home builders after tariffs on Canadian lumber were imposed in November. In the same statement from the chairman of NAHB, he states that these new tariffs “could not have come at a worse time” as construction costs are already at all-time highs.
As winter comes to a close, construction projects will resume, and the housing market will start to gain momentum into the summer. Lumber and steel are the main materials used to frame almost all the buildings in this country and consumers will be the ones picking up the tab for higher construction costs. Although the lumber tariffs have been in place since November, the full effect has not yet been seen in the industry since winter is traditionally a slow period for the industry. As we start to see the market pickup, we will also see the effects of higher priced materials. This article shows that new housing starts are up almost 10% in 2018 and multifamily home construction is up over 20%. New home sales were down slightly in January, but home builders and realtors are still projecting growth in the coming months as we head into summer. The same cannot be said for existing home sales, though. Purchases fell over 3% in January and inventory was down almost 10%, the 32nd month of consecutive declines for listings.
As we see new listings of existing homes on the decline, and newly built home purchases on the rise, these new tariffs may cause some friction and shift how consumers are buying homes. Will consumers want a custom home in a new neighborhood that costs 20% more, or opt for the fixer-upper in an established neighborhood at market price? Only time will tell, but I would personally rather buy the fixer-upper in an established neighborhood, so I can gain some sweat equity. I haven’t noticed any price increases in lumber or materials at my local Home Depot (shameless plug… I used to work there), but as home builders start using larger quantities of wood and materials in the next few months, the impact might be felt in your neighborhood hardware store too.
The opinions expressed in this post are the sole view of the writer and do not reflect the opinion of Princeton Mortgage Corporation.