As global trade dynamics continue to evolve, tariffs have become an increasingly relevant factor for real estate investors and builders. Whether you're developing new construction or undertaking a fix-and-flip project, it's worth understanding how tariffs could affect both the cost of materials and broader economic forces like interest rates.
Tariffs—essentially taxes on imported goods—can directly increase the cost of building materials. When the U.S. imposes tariffs on products like steel, aluminum, or lumber, those added costs often get passed on to developers, contractors, and ultimately buyers.
For example:
The National Association of Home Builders (NAHB) estimates that tariffs on Canadian softwood lumber have added over $14,000 to the average price of a new single-family home since 2017.
A report by the U.S. International Trade Commission found that 25% tariffs on steel imports in 2018 led to a 10% increase in domestic steel prices in the following year.
According to the Bureau of Labor Statistics, prices for construction inputs like gypsum, plywood, and steel mill products rose significantly in years when major tariffs were implemented.
For real estate investors, this means renovation and new build budgets may need to be padded to account for higher costs of essential materials.
While tariffs can raise input costs, they also play a more subtle role in shaping macroeconomic policy, particularly interest rates.
Tariffs tend to slow down global trade and can act as a drag on economic growth. In response, central banks—like the Federal Reserve—may lower interest rates to stimulate economic activity. Lower rates can be a silver lining for real estate investors, as they reduce the cost of financing.
During the 2018-2019 trade dispute between the U.S. and China, the Federal Reserve cut interest rates three times, citing "global developments" and "trade policy uncertainty" as key factors.
A 2020 paper from the Federal Reserve Bank of Dallas noted that “trade uncertainty can amplify downside risks to the economy,” potentially triggering accommodative monetary policy.
Beyond the Fed, the bond market—particularly the 10-year U.S. Treasury yield—plays a critical role in how tariffs affect housing finance. The 10-year Treasury is closely tied to 30-year mortgage rates, often serving as a benchmark for lenders.
When tariffs spark economic uncertainty, investors often move money into safe-haven assets like U.S. Treasuries. This increased demand drives Treasury prices up and yields down. As a result, mortgage rates tend to fall.
In 2019, amid escalating U.S.-China tariff tensions, the 10-year Treasury yield fell from 2.7% to below 1.5%, helping bring 30-year fixed mortgage rates down from around 4.5% to below 3.75%.
For real estate investors who leverage financing in their business, lower Treasury yields can offer relief from rising construction costs by making borrowing cheaper. However, as with Fed policy, this relationship is dynamic and driven by both domestic and global economic sentiment.
It’s important to note that the ultimate impact of tariffs depends on their scale, duration, and geopolitical context. While tariffs may raise costs on the front end, they can also contribute to an environment where interest rates and bond yields are lower for longer—potentially reshaping how investors model risk and return.
In the short term, staying informed on material price trends and interest rate forecasts is key. For long-term strategy, investors should monitor trade policy signals from Washington, bond market movements, and central bank decisions alike.