New Tariffs and Home Construction Prices: What This Means for Homebuyers Now

Real estate buyers aren’t always looking for a new, move-in-ready home. In many cases, they are seeking to either build a place of their own or buy a fixer-upper that they can renovate to either live in or sell later. Both of these endeavors require them to work hand-in-hand with local construction contractors. Whether the project is a large-scale build that begins from the literal ground up, or is a simpler remodel project with a significantly shorter timespan, the client/builder relationship remains a critical touchpoint throughout the process.

In August 2018, U.S. tariffs took effect on $16 billion worth of imported Chinese goods with a more recent round anticipated to hit $10 billion, this time with a focus on products designed to facilitate the home building market. In all, it is expected that $200 billion worth of Chinese goods will be levied. While the tariff is currently set at 10%, experts note that it could escalate to 25% by the end of this year. Collectively, that will result in a $2.5 billion increase in industry taxes.

What does this mean for homeowners? For starters, it means that it the simple DIY repair job you’ve been considering might cost more than you originally budgeted for. If you’re building a new property, it’s important to anticipate that your contractor may work in an escalation clause into the official signed documentation. In short, this means that while you may agree on a set price now, you’ll need to remain flexible to the idea that the figure could change six to 12 months down the road. As such, these types of clauses account for that increase and ensure that customers understand and can better plan for the price fluctuation.

As the real estate market continues to boom, homes are selling for higher-than-average prices in many parts of the country. In turn, this gives sellers more ready access to a substantial amount of cash, leaving them eager to invest in new projects. As a result, demand for home builders has increased over the past year alone, pushing timelines farther out and leaving contractors seeking out new resources and partnerships to take on the heavier workload.

As these new tariffs continue to roll out, it stands to reason that builders will be in even more of a hurry to get their projects completed on time, especially given the expected tax increases. As they move forward and get into the project, industry experts maintain that cost savings will take center stage as builders seek to find the most affordable ways to get the look they want. While in some cases that might mean opting for granite over marble countertops or laminate hardwoods over the real thing, in other instances it might affect how customers approach the homebuilding process as a whole. Already, more attention has been given to the prefab industry as an affordable housing solution in the wake of rising custom construction costs, which this website compares in detail.

While the tariffs are already affecting the prices of Canadian lumber, along with imported goods comprised of steel and titanium, this is only the tip of the iceberg. As we continue into the last quarter of 2018, it is expected that prices will increase on myriad household components ranging from light fixtures to HVAC units and even wall materials. Another major material that will inevitably see a hike is decorative backsplash tile and mosaic glass, both of which can transform a kitchen or bathroom. The reason? Most of these materials are not made domestically in the United States, so contractors have to pay import duties to bring them in. Heavier import duties are also being enacted on quartz countertop materials in addition to the tariffs already in place.

The single change in quartz availability will limit home buyer options, but will also directly affect the relationship between retail sales managers and distributors. As prices continue to climb on quartz countertops, specific colors and models may become impossible to buy, as they were produced by hand by Chinese designers and as such, no one can replicate them. Even if showroom managers want to use these attractive components in their spaces, odds are high they will not be able to receive them at a cost point that is viable for anyone, so you can expect to see fewer of these looks when shopping over the next year.

In the short term, these raised prices directly affect those looking to rebuild and recover after natural disasters, chief among them victims of the California wildfires and Hurricane Florence which hit the coast of the Carolinas in mid-September. The collective $200 billion worth of goods on which the tariffs are imposed also includes many materials that are critical to basic rebuilding efforts, including gypsum (used to construct drywall) as well as steel and aluminum. The New York Times recently reported that in all, these changes could make recovery efforts 20% to 30% higher than they would be otherwise.

As more homeowners seek affordable housing options in the wake of the increased builder demand, keeping a close eye on price spikes will be a critical measure moving forward. Before signing on the dotted line and agreeing to work with a contractor, both parties should be aware of which materials are being tariffed and how this will affect the overall project as a whole. In many cases, this may drive sales toward lower-end goods that are more easily developed and produced than products only available in overseas markets.

Real estate experts will also be responsible for making sure new buyers understand these changes as well. While the rise of popular home improvement shows has made home remodeling and renovation more attractive than ever before, it also means that buyers are often biting off more than they can chew, seeing the potential in a property that ends up being more of a money pit than it’s worth. While agents can’t necessarily influence these decisions or prevent these purchases from being made, they can do their due diligence to make sure buyers are as educated and prepared as possible before making this next big move.

Courtney Myers
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