Construction costs started surging in anticipation of tariffs — and they could get worse with a baseline 10% tariff now in place on imported goods from most countries, not ot mention a sky-high tariff of 145% on most Chinese goods.
That all translates into higher costs for new condos and homes, even after the Trump Administration announced a 90-day pause for many previously unveiled "reciprocal" tariffs on countries other than China.
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“We’re seeing [subcontractors] throw an additional cushion into their numbers anticipating tariffs,” Related Group CEO Jon Paul Pérez told CNBC in March.
“It could be as much as 20%, depending on what material they’re getting from another country.”
The billionaire developer told CNBC that contractors bidding on seven of its projects are raising their prices, driven by the anticipation of higher costs.
A tariff on imported goods — in this case, construction supplies like softwood lumber sourced from Canada and gypsum (for drywall) sourced from Mexico, means higher costs that are either absorbed by builders or passed onto consumers.
How tariffs are impacting the construction industry
The cost of housing has been on the rise — and it’s not just because of tariffs. Supply chain issues have had a negative impact on the construction industry for several years.
“The cost of building materials has already risen by 34% since December 2020, which is far higher than the rate of inflation,” notes the National Association of Home Builders (NAHB). In a March survey, before reciprocal tariifs were even announced, it estimated that tariff actions could increase the price of a typical home by $9,200.
On April 2, President Donald Trump announced sweeping tariffs, including a baseline of 10% for all trading partners and 25% on all imported cars. The “reciprocal” tariffs he’d proposed for trading partners with large trade imbalances were later paused, for 90 days, with the exception of China.
There were no additional tariffs on Canada and Mexico, but tariffs of 25% remain on goods that aren’t covered by the Canada-United-States-Mexico Agreement (CUSMA).
Contractors reacted by raising their prices in anticipation of those tariffs.
“These tariffs are projected to raise the cost of imported construction materials by billions of dollars, depending on the specific rates,” warns NAHB, and some critical supplies could see dramatic increases that “could substantially impact builders’ ability to deliver new projects.”
Another factor to consider is the crackdown on immigration, which could have an inflationary effect on the construction industry — which relies heavily on foreign-born workers.
So, what can condo buyers do in today’s market? Here are 3 smart financial moves.
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1. Lock in financing early
Mortgage rates fluctuate for a number of reasons, from supply and demand to economic pressures (a downturn, for example, could result in lower rates to spur growth). The mortgage market also tends to follow movements in the Federal Reserve’s key borrowing rate.
If you’re worried that rates will rise between the time you make an offer and closing, an option is to lock in financing with a mortgage rate lock. This provides a fixed rate for a set period of time (typically between 30 to 60 days, but possibly longer). Some lenders will offer this for free, but others may charge a fee.
The flipside is if interest rates drop, then you’re stuck with the higher locked-in rate. Some lenders may offer a ‘float-down provision’ so you can secure the lower rate if it drops by a certain amount, but there’s usually a fee for this.
2. Explore new construction incentives
Another option is to consider buying a pre-construction condo, which means it’s still being built. Homebuilders may offer incentives to attract potential buyers and to persuade them to sign a contract — and it’s possible we could see more of these types of incentives if the market slows.
In 2022, for example, when the market rapidly slowed during the height of the COVID-19 pandemic, builders used sales incentives to boost sales and limit cancellations. According to NAHB, 59% of builders offered some kind of incentive, such as paying closing costs or fees, offering options or upgrades at low or no extra cost and offering mortgage rate buydowns.
If you’re looking at new construction, it’s always worth asking about incentives.
3. Consider alternative financing
You also have options beyond a traditional mortgage. For example, there are a number of government-backed loans available if you meet certain criteria. These include:
- FHA loans: Offered by certain banks, these loans usually require a smaller down payment than a traditional loan, and they’re insured by the Federal Housing Administration (FHA). If your credit score is preventing you from a traditional loan, this may be an option.
- VA loans: If you’re a vet, active-duty service member or eligible spouse, a VA loan can provide perks such as no down payment and no private mortgage insurance requirements.
- USDA loans: If you’re looking to buy a home in a rural area and you meet income requirements (for low to moderate-income homebuyers), a USDA loan may offer more competitive interest rates than a traditional rate and options for no down payment.
There’s also down payment assistance (DPA) programs offered by state and local governments, which are low-interest or deferred-payment loans to help first-time homeowners cover down payments.
Other options include owner financing (where you buy direct from the seller and pay the seller back in installments rather than going through a bank) and rent-to-own (where you rent the property before buying it at the end of the lease). These types of arrangements can be complex, so you’ll want to consult with a real estate attorney before proceeding.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
