Tariffs and the U.S. Real Estate Market: 6–12 Month Outlook

President Donald Trump’s recent tariffs – spanning steel, aluminum, lumber, and a broad range of Chinese imports – are poised to ripple through the U.S. real estate market in the coming 6–12 months. These tariffs act essentially as new taxes on construction materials and goods, raising costs for building homes and commercial projects. The result could be increased uncertainty and volatility in both residential and commercial real estate, affecting everything from construction expenses and supply chains to property values and mortgage rates. Below, we analyze the potential impacts and outline what they mean for developers, homebuyers, investors, and renters, along with strategies to navigate the choppy waters ahead.

Rising Construction Costs & Supply Chain Disruptions

Tariffs on key building materials are already driving up construction costs. Builders estimate that recent tariff actions add about $9,200–$10,900 to the cost of a typical new home​nahb.org. This stems from higher prices on imported lumber, steel, aluminum, copper, drywall components, and appliances – all crucial for homebuilding. For example, Canada supplies ~85% of U.S. softwood lumber, and while new “reciprocal” tariffs exempted Canadian lumber, an existing 14.5% duty remains (with a risk of doubling)​nahb.org. Similarly, steel and aluminum imports have faced a 25% tariffsince March, pushing domestic steel prices higher. In commercial construction, analysts project tariffs could raise costs by roughly 5% on new projects, with multifamily housing more affected than, say, industrial warehouses (due to different material needs).

Expect supply chain volatility as builders and suppliers scramble to adapt. Many contractors source concrete, gypsum, and other heavy materials domestically, which helps. However, even domestic products can see price hikes when tariffs disrupt global supply and demand. Industry experts note that tariffs “wreak havoc” on building material supply chains, adding further upward pressure on prices. In fact, nonresidential construction material prices jumped at a 9% annualized rate in early 2025 as firms rushed to stockpile inputs ahead of the tariffs. Bottom line: over the next few months builders will likely face higher material costs (potentially another 5–10% increase) and longer lead times for certain items, forcing some to delay or scale back construction projects​constructiondive.com. This raises the hurdle for new development and could tighten the pipeline of new homes and commercial space coming to market.

Market Uncertainty and Interest Rate Volatility

Beyond direct costs, the tariffs are injecting a heavy dose of uncertainty into financial markets – and real estate thrives on stability. Developers say the “worst condition you can have in real estate is uncertainty… not being able to lock in prices” for materials and labor. Trump’s on-again, off-again tariff announcements have created whiplash: an April 2 tariff announcement (and partial pause) shocked both stock and bond markets. In an unusual pattern, investors sold off U.S. Treasury bonds on trade war fears, causing long-term Treasury yields to rise (a warning sign for the economy). Since mortgage rates tend to follow the 10-year Treasury yield, they’ve been bouncing around in reaction to tariff news. Indeed, since early March average 30-year mortgage rates have fluctuated roughly between 6.5% and 7%, and they could remain volatile in that range throughout much of 2025.

Tariff-driven uncertainty is influencing interest rates in complex ways. On one hand, tariffs fuel inflation (by making goods more expensive); forecasters expect core inflation to rise into the mid-3% range, which puts upward pressure on interest rates. On the other hand, economic growth may slow (CBRE projects U.S. growth around 1.3% in 2025), which could motivate the Federal Reserve to cut rates to support the economy. The Fed may end up trimming short-term rates, but if global investors lose confidence and foreign central banks (like China or Japan) buy fewer U.S. bonds, long-term yields (and mortgage rates) could stay elevated​cnet.com. In short, expect the unexpected with mortgage rates – they may swing with each development in trade negotiations. This volatility can spook homebuyers and real estate investors, since a sudden jump in rates hurts affordability​cnet.com. Until there’s clarity on how far tariffs will go and how other nations might retaliate, the housing market is likely to see bouts of uncertainty-fueled volatility.

Impact on Residential Real Estate (Homes & Rentals)

Home Construction & Prices: Higher material costs and supply chain issues are a one-two punch for U.S. home construction. If building a new single-family home now requires an extra $10k (or more) in materials due to tariffs​nahb.org, many builders – especially smaller firms with thin margins – will slow production or postpone projects. Some builders may try to source alternatives or absorb costs, but many will pass costs to buyers or build less. Fewer new homes coming to market over the next year means the existing housing supply stays tight. With demand outpacing supply, those buyers who can stomach higher prices may bid up home values further. In other words, tariffs could indirectly push home prices higher by crimping the supply of homes. Pelin Pekgun, a supply-chain professor, warns that if critical materials become too expensive or scarce, builders will delay projects, leading to “slower construction and fewer homes on the market.” Limited supply “could then push prices even higher, intensifying affordability challenges”.

On the flip side, housing demand could cool if mortgage rates and sticker prices climb too much. Affordability is already stretched – the median U.S. home price (~$385k in late 2024) and ~7% mortgage rates put many families above the 30%-of-income cost burden threshold. As tariffs raise consumer prices broadly (from appliances to groceries), buyers may feel less confident in their finances. Some first-time or price-sensitive buyers might press pause on home searches, especially if monthly payments jump. So we have a tug-of-war: low inventory props up prices, but waning affordability softens demand. The likely scenario in the next 6–12 months is modest home price growth in many areas – not a crash, but potentially slower sales volume as fewer people can afford to transact. Markets with lots of new construction might see sharper supply crunches and price upticks, whereas high-cost markets might see buyers maxed out and prices leveling off.

Mortgage Rates & Financing: As noted, mortgage rates are in flux. They aren’t rising in a straight line, but they’re elevated compared to recent years. Higher rates directly reduce homebuyers’ purchasing power: a 1% increase in mortgage rates can cut buying power by ~10%. If tariffs keep inflation fears alive, rates could stay in the mid-6% to 7% range near-term – far above the ~3% rates of 2020–2021. This means many buyers will only qualify for smaller loans, or they’ll face significantly higher monthly payments for the same house​cnet.com. In practical terms, some prospective buyers will rent longer or buy later, which further reinforces rental demand. Existing homeowners with low fixed rates will be reluctant to move (the “lock-in” effect), which again limits housing supply on the market. The wildcard is if economic conditions deteriorate: the Fed could cut rates, and mortgage rates might dip a bit. However, any relief is uncertain and likely minor in the 6–12 month window (CBRE expects the 10-year Treasury to hover around 4%, keeping mortgages elevated). So, buyers and sellers should be prepared for rate volatility, and not count on rates falling significantly during this period.

Renters & Rental Market: Renters could end up feeling indirect effects of the tariffs as well. If fewer homes are built or listed for sale, more people will continue competing for rentals, potentially driving rents up. Developers of apartment complexes face the same cost pressures (steel, lumber, etc.), which might slow the addition of new rental units. In the short run, landlords may gain pricing power due to heightened demand and limited new supply. Already, some developers report raising rents to offset higher financing costs on projects. Rent growth could tick above normal in tight markets if would-be buyers stay renters. For consumers, that means budgeting for possible rent increases. On a positive note, if the economy slows substantially, rental demand might ease (as some people move in with family or double up to save money). But generally, housing economists are concerned that tariffs will make a bad housing supply crunch worse, which is not good news for renters seeking affordable options.

Impact on Commercial Real Estate (Developers & Investors)

Developers and Construction Projects: In the commercial sector, the tariff turbulence introduces new risks for developers of offices, retail centers, warehouses, and apartments. Construction input costs were already 41% higher than pre-pandemic (Feb 2020) by early 2025​constructiondive.com, and tariffs add more fuel to the fire. Many owners and developers are hesitating to start new projects in this climate. As one construction CEO noted, material prices are likely to “rise in the coming months” and the uncertainty around trade policy could “slow construction investment activity”​constructiondive.com. We may see a noticeable dip in privately-funded nonresidential projects later in 2025​constructiondive.com – developers will wait for more stable costs or signals that tariffs won’t worsen. Projects already underway will generally continue to completion (sunk costs), but future groundbreakings are most at risk​constructiondive.com. Sectors with longer planning cycles (e.g. large office towers or shopping malls) might hit the brakes until economics improve.

It’s not uniformly grim: certain projects will proceed, especially where demand is strong or where developers secured materials before price hikes. Also, infrastructure and public projects (fueled by government funding) had been robust and may continue if budgets can absorb higher costs​constructiondive.com. But even city and state projects could face strain if steel/concrete costs overshoot estimates or if “Buy American” requirements limit cheaper sourcing. Developer sentiment can be summed up in one word: cautious. High borrowing costs (interest rates on construction loans remain high) combined with tariff-related cost inflation mean razor-thin margins. Some developers report needing more equity financing or raising rents on completed projects to make the numbers work. Overall, expect a slower pace of commercial development in the next few quarters – good news for preventing oversupply, but potentially bad for construction jobs and future space availability.

Commercial Property Values & Investment Appetite: Existing commercial properties (like office buildings, malls, apartments) will also feel the ripple effects. In an environment of rising costs and interest rates, property values can face downward pressure. Higher interest rates tend to raise cap rates (the return investors demand), which lowers property valuations. For instance, if investors require just 0.5% higher return due to risk, the price they’ll pay for the same rent income drops noticeably. However, there’s a counter-force: if new construction slows, existing buildings have less new competition, which can support their occupancy and rent growth. Additionally, inflation in construction costs can make replacement (building new) so expensive that investors might bid up prices of existing assets (since buying an existing building could be cheaper than building anew). These dynamics will vary by sector: industrial and logistics properties might remain in high demand thanks to shifts in supply chains (and they’re less material-cost intensive to build), whereas multifamily and office developers feel more pain from material costs.

Investment activity is likely to be mixed. Some investors will sit on the sidelines until volatility eases – we could see lower transaction volumes in commercial real estate as buyers and sellers struggle to price in the new risks. Others, especially those with plentiful cash (dry powder), may see an opportunity. Opportunistic investors and private equity “value-add” funds often become more active during uncertainty. They look for bargains: for example, a developer under cost pressure might sell a project or land at a discount, or an owner with a refinance due might accept a lower price amid high interest rates. Redfin’s economics team notes that tariffs and slower growth could create a more recessionary environment which, somewhat counterintuitively, might bring slightly lower mortgage rates and some buying opportunities for those ready to move quickly. Lease activity in commercial spaces may also slow in the near term – companies facing trade uncertainty might delay expanding or relocating offices, and retailers could be more cautious with new store openings. Warehouse leasing could remain solid as firms reconfigure supply chains (some firms may need more warehouse space to stockpile goods or mitigate logistics delays). In summary, the commercial sector’s health over the next year will hinge on how long tariffs last and how businesses adjust. If the tariffs drag on or escalate, expect a bumpy ride with fewer new developments and selective investment activity.

Navigating the Uncertainty: Strategies for Consumers and Investors

While the situation is complex, there are practical steps different stakeholders can consider to navigate the tariff-induced uncertainty:

• Homebuyers: Timing and Financing – If you’re in the market to buy a home, brace for potential price increases in new construction (due to tariffs) and keep an eye on mortgage rate swings. It could be risky to “wait for prices to drop” because tariffs are reducing supply, not demand, which tends to support home prices. If you find a suitable home and can afford it, locking in today’s price and rate might be wiser than gambling on a drop. With rates jumping on trade news, ask your lender about a rate lock or float-down option – this can protect you if mortgage rates spike before you close the deal. On the flip side, if rates dip (say, due to economic slowdown or Fed action), be ready to refinance. In short, be financially prepared and don’t overextend – build in a cushion for potential cost overruns or rate changes.

• Homeowners & Renovators – If you already own a home, tariffs could affect you in subtler ways. Remodeling or expansion will likely cost more; contractors may pass on higher prices for lumber, appliances, and wiring. Plan for around ~5–10% extra in your renovation budget as a buffer. If you have a mortgage with a high interest rate, watch for refinancing opportunities: any sign of easing inflation or economic strain could lead to a window where rates tick down slightly – that could be your chance to lock in a lower rate for the long term. Also, shop around for materials or consider alternative products (for example, composite decking if lumber is pricey, or locally-sourced materials that aren’t tariffed) to control costs. Until the trade dust settles, patience and price-conscious planning will be key for any home projects.

• Real Estate Investors – Diversification and due diligence are your friends. Whether you own rental properties or invest in REITs, ensure your portfolio isn’t over-leveraged on sectors that could be hit hard by construction delays or cost overruns (e.g. a small development firm with multiple projects underway might struggle). If you’re considering acquiring properties, underwrite conservatively: factor in higher construction/repair costs and the possibility of needing to offer tenant concessions if the economy slows. It may be prudent to favor income-producing existing properties over development projects in the short term, unless you have strong contingencies in place. Additionally, this could be a time to keep some cash reserves – if the market volatility leads to price corrections, you’ll be ready to scoop up opportunities (for instance, a distressed asset or a motivated seller). For those investing in new developments or value-add projects, insist on fixed-price contracts with builders where possible, or put cost-escalation clauses in leases to protect your returns. Lastly, consider interest rate risk: explore financing options like rate locks or swaps to hedge against further rate jumps. In uncertain times, the best offense is a good defense – position yourself to weather surprises.

• Renters – While you might not be directly buying steel or lumber, you could feel the squeeze if new housing supply lags. Be aware that rent prices in your area might rise faster than usual if would-be homebuyers remain in the rental market and vacancy stays low. If you’re comfortably renting now and plan to stay put, see if you can renew your lease early or secure a longer-term lease (some landlords might agree to a 18- or 24-month lease) to lock in the current rent before any increases hit. Conversely, if you have flexibility and are eyeing homeownership, keep an eye on the market – late 2025 could potentially offer a slight cooling in home prices or at least less competition, especially if interest rates stabilize. In the meantime, maintain good credit and save up; being financially ready will give you more options whether renting or buying. If rents in your city become unsustainable, you might even evaluate relocating to more affordable areas as a strategy. The key is to stay informed: watch housing reports and local market trends so you’re not caught off guard by a sudden jump in rent or a narrow buying window.

• Builders and Developers – (For those in the industry) focus on resilience and flexibility. Consider sourcing materials from countries or suppliers not subject to tariffs, when possible, or substituting materials (e.g. using engineered wood or recycled steel) to cut costs. Some developers are re-evaluating design choices – for instance, opting for wood framing in mid-rise construction instead of steel where suitable. Engaging in value engineeringearly can help keep projects viable. Also, keep communication open with lenders and investors: acknowledge the uncertainty but share your contingency plans (such as bulk-buying critical materials in advance or adjusting project phasing) to maintain confidence. Where projects still pencil out, it might be a good time to push forward on permitting and entitlements so you’re ready to build when conditions improve. Lastly, industry groups like NAHB are actively lobbying against extreme tariffs​nahb.org​nahb.org – staying involved can amplify the push for policies that support housing and construction.

Current vs. Projected Conditions Table

To summarize the changes we might expect, the table below compares current conditions (as of spring 2025) to projections over the next 6–12 months in a tariff-impacted scenario:

(Table notes: Projections assume current tariff policies remain in effect for the next 6–12 months without major escalation or reversal. Actual outcomes will depend on economic responses and any policy changes.)

In A Nutshell. . .

In summary, President Trump’s tariffs are set to reverberate through the U.S. real estate market by raising building costs, squeezing supply, and stirring uncertainty. Both the residential sector (homebuilders, buyers, renters) and the commercial sector (developers, investors) face a more challenging landscape in the short term. We can expect some upward pressure on prices (for new homes, construction, rent) and persistent volatility in interest rates, all of which combine to test market confidence. While the overall economy’s trajectory will play a big role in how severe the impacts are, it’s clear that many in real estate are bracing for a bumpy 6–12 months.

Yet, uncertainty doesn’t mean paralysis. By staying informed and adopting prudent strategies – whether it’s locking in a mortgage rate, diversifying investments, or rethinking a project’s design – consumers and investors can navigate this period with more confidence. Tariffs introduce risk and complexity, but savvy players will adjust their sails accordingly. In the long run, if trade tensions ease, some of these pressures could abate. In the meantime, caution and careful planning will be key. The real estate market has weathered many storms, and with the right approach, stakeholders can mitigate the effects of this trade turbulence and even find opportunities amid the challenges.

Sources: Major insights are drawn from real estate experts, economic analysts, and industry surveys as cited. Key references include the National Association of Home Builders on cost impacts​nahb.org, CBRE and Redfin’s economic briefs on tariffs and real estate, Construction Dive’s report on project risks​constructiondive.com, and commentary from housing economists and supply chain experts. These provide a grounded basis for understanding how tariffs might shape the market in the months ahead.