Could Trump's tariffs spike construction costs – and keep mortgage rates higher?
Donald Trump is vowing to slap sweeping tariffs on softwood lumber imports in April, potentially plunging a key industry in US home construction into turmoil.
The president said last week he was “probably” expanding threatened measures against Canada to Europe, with lumber among a range of products included in the measures along with cars, semiconductors and chips, and pharmaceuticals.
“If they don’t make their product in America, then very simply they have to pay a tariff,” Trump told a Miami conference. “But if they do make their product in America, they don’t have to pay any tariff.”
Canada currently supplies almost a quarter of lumber consumed in the US, with that material essential for US homebuilding and other construction.
Most other lumber shipments into the US arrive from Europe – and across-the-board tariffs on imports could roil the lumber market and cloud the national homebuilding outlook, according to an international wood market expert.
Russ Taylor (pictured top), of Russ Taylor Global, told Mortgage Professional America the market’s prospects could twist dramatically if Trump’s threatened measures go ahead.
“All bets are off now because we can’t predict anything,” he said. “My thoughts on 2025 beforehand was ‘not bad’ because I thought demand was never going to be strong, but we cleaned up the excess supply and looked like we could get a bit of supply-and-demand tension moving as the year went on.
“I was mildly optimistic, but now I’m mildly pessimistic because nobody likes uncertainty and [Trump] is just threatening everybody with uncertainties. He’s threatening US government workers with uncertainty. He’s giving even US factories that rely on imports uncertainty. He’s creating uncertainty for the suppliers to the US market because buyers don’t know what prices they’re going to be paying for imports or domestic products.”
Home construction prospects darken amid trade uncertainty
The US is already short millions of homes – and huge tariffs could see builders slam the brakes on lumber spending, Taylor said, as they scramble to see what they can purchase domestically and through American wholesalers and distributors.
That points to “total chaos” in the water, with US buyers also potentially rushing to purchase as much Canadian or international lumber as they can before the tariffs arrive.
“I think it’ll probably take all of the second quarter to find it in a smoother transition,” Taylor said. “Prices will be higher; we don’t know by how much, but at least they’ll be a lot more stable and [suppliers] could talk to their customers and see if they’re willing to pay a higher price.
“That’s the uncertainty – and I think at the same time, demand is going to be softer, especially in the rest of this quarter and next quarter because no-one’s going to be willing to position themselves into a buy position, and they’re going to be very cautious.”
Mortgage rates could bear the brunt of inflationary pressure
A trade war could spell bad news for the construction sector – and the mortgage rate outlook, thanks to the prospect of higher costs passed on to the consumer.
“I think it’s going to slow down demand and I can’t imagine it’s going to cause [mortgage rates] to go lower,” Taylor said. “The threat of inflation is going to be looming because of higher prices and so, it seems to me that everything’s going to be in chaos and it’s got to adjust.
The average 30-year mortgage rate in the US fell to 6.85%, the lowest since late December. Freddie Mac reports this as a boost for homebuyers, despite high home prices. https://t.co/Hi239i2XDJ#MortgageRates #Homebuyers #RealEstate
— Mortgage Professional America Magazine (@MPAMagazineUS) February 21, 2025
“We’re looking at probably higher mortgage rates in the short term because of that inflation… and then I think demand is going to be soft, supply is going to be disrupted, and eventually we’ll get into a smoother transition. But I would say some market chaos as this thing unfolds [is coming].”
While the tariffs are partly intended to bring companies back to the US and encourage keeping jobs local, it remains to be seen whether the US construction industry can swiftly pivot to domestic lumber production and supply if those levies come into play.
“Can the US increase production marginally? Yes, but they don’t have a lot of surplus skilled workers,” Taylor said. “They have to get extra capacity for logging and logging trucks. So that’s all going to take time and they won’t be able to respond very quickly – and they won’t be able to respond until they know if the tariffs are in or out. So it’s just chaos – like nothing I’ve ever seen in my career.”
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