The U.S. real estate market has weathered many economic shifts in the past, but 2025's barrage of tariff increases, job losses, government upheaval and market volatility are introducing fresh challenges. Homebuyers, sellers, builders, investors, and policymakers are all struggling to adapt. The upcoming spring season will highlight which markets are successfully adjusting and which are facing mounting difficulties.
In Washington DC region, federal workforce reductions and agency closures, tariffs, and resulting economic constraints will test one of the nation’s most resilient real estate markets.
How Are Tariffs Impacting U.S. Construction?
When tariffs increase, construction costs rise. Whether or not they'll be passed on to consumers is not a question of 'if' but of 'when.' If tariff wars are brief, developers can absorb any short-term loss, or prevent loss by purchasing before tariffs are implemented, or find alternate sources for materials. If tariffs are ongoing, however, consumers will feel the impact.
Trump's 25% tariffs on Canadian and Mexican imports and an additional 10% tariff on Chinese goods were delayed from January, so any initial impact has likely been absorbed by homebuilders, or avoided altogether by purchasing ahead of tariff implementation, or by sourcing materials elsewhere. This means there should not be a dramatic impact felt by housing consumers in the very short term. If tariffs continue, however, that is bound to change.
CNBC reports:
- Lumber, gypsum for drywall and home appliances are expected to be impacted by tariffs on Canada, Mexico and China (now taxed at 20%)
- The new tariffs could increase builder costs anywhere from $7,500 to $10,000 per home, according to the National Association of Home Builders
- The greatest impact to homebuilders will be from lumber cost increases, which are expected to total about $4,900 per home on average, according to Leading Builders of America
Homebuilders will not absorb such extensive losses. Instead, they will be priced into new homes and consumers will bear the cost increases.
New construction projects in early stages and those still in planning phases will be impacted by ongoing tariff wars :
- Lumber Prices: Historically, tariffs on Canadian softwood lumber have added thousands to the cost of new homes
- Steel & Aluminum: Tariffs on these metals affect everything from appliances to HVAC systems
- Supply Chain Delays: Even materials not directly tariffed will see cost increases due to elevated shipping costs and supplier uncertainty.
Homebuyers Lose, The Real Estate Market Suffers
With materials becoming more expensive, homebuilders have few choices:
- Pass higher costs onto buyers, making homes even less affordable
- Eliminate buyer incentives on new construction to cover the costs
- Build fewer homes, which reduces supply and drives up resale prices
The market for newly built homes has been one of few bright spots for U.S. housing over the past two years. The U.S. Census Bureau reports that approximately 683,000 new homes were sold in 2024, an increase of 2.5% from 2023, a year that ended as the worst real estate market in 30 years.
New home construction has played a pivotal role by increasing inventory levels, which helps restrain home prices, particularly in 2024, when the industry ramped up production. Single-family home completions rose by 2.2% from 2023, and more than 1M single-family home starts were initiated, a 6.5% increase from 2023 (NAHB). This was an optimistic marker for the real estate industry as a whole, which has suffered stagnation due to lack of inventory and higher mortgage interest rates.
2025 forecasts published by Realtor.com suggested continued growth in new home construction, with plans to increase production by 13.8%, a significant step in addressing the national housing shortage, in particular affordable housing benefiting first-time homebuyers.
But with tariffs creating uncertainty around costs, pricing, supply chain and shipping, those plans may change.
The Unique Challenges Facing Washington DC
In Washington DC, which is highly dependent on federal employment, this year's federal job cuts are creating instability in a real estate market that was already slowing due to home price increases, mortgage rates and economic uncertainty, but holding its own in terms of home values.
Historically, the District has been one of the nation's most reliable markets, but now it is being attacked at its very core, which is government employment.
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