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Are expensive building materials hurting the DC housing market?

The U.S. housing market largely depends on imported materials to build new homes and grow inventory. Today, these materials are becoming more costly due to recent government policy changes, such as the Trump administration’s tariffs on countries like China, Mexico and Canada.

The Washington, D.C., housing market is no stranger to high costs. But rising prices for building materials, including softwood lumber, adds another layer of complexity to D.C.’s turbulent affordability situation.

With costs rising, developers are struggling to stay above water financially. What’s the result? Higher home prices, a limited supply of new homes and more migraine-inducing stress for renters. Meanwhile, affordability remains at the forefront of policy talks on Capitol Hill.

But the question remains: How exactly are expensive materials impacting the D.C. housing market? This week’s D.C. housing market report uses Altos data to answer that question.

Canadian lumber dependency

The cost of building comes down to labor expenses and material costs. The price of building materials like lumber is mostly standardized across the U.S. Local demand and supply changes can cause small-scale price variations, but significant increases are felt nationwide.

Dustin Jalbert, senior economist of wood products for Fastmarkets, offered insights into how much the U.S. relies on Canadian softwood material.

“Canadian lumber accounts for something like a quarter of domestic softwood lumber consumption here in the U.S. We need that supply to clear the construction market,” Jalbert said in an interview with HousingWire.

The U.S.’s reliance on Canadian lumber can create problems if any disruption arises within the supply chain. With that in mind, consider recent government policy changes. Jalbert said that tariffs can cause issues and the U.S. might not have an alternative option.

“Any disruption in Canadian lumber supply — such as through tariffs— can lead to significant price increases and supply shortages. Despite the U.S. having domestic alternatives like Southern yellow pine, these materials are not perfect substitutes,” Jalbert said.

“As a result, losing access to Canadian lumber could exacerbate the challenges facing the construction market, further driving up costs and complicating the efforts to meet the demand for new housing,” he added.

Response to material scarcity

Tight housing markets with high demand give builders and developers the leeway to pass higher costs to consumers with relative ease.

Jalbert also explained that declining demand in markets like Austin make it difficult for builders to raise prices without risking their sales volume.

“Contractors in a place like Austin won’t have a lot of leverage to pass on those building material costs,” he said. “The ability to transfer costs to consumers is influenced by local market conditions, including inventory levels and buyer competition.”

As for the tie-in to the D.C. market, Jalbert characterized it as one that’s “still pretty tight, and demand is high. Contractors may have an easier time passing on some of those costs to the homebuyer.”

With Jalbert’s insights in mind, let’s dive into this week’s Altos data and determine if demand is truly high in the D.C. housing market.

Pending home sales rise yet again

Altos’ weekly pending contract data helps to visualize demand in the D.C. housing market. Let’s check out the last four weeks of pending home sales data.

Week of Feb. 21: 596
Week of Feb 28: 598
Week of March 7: 629
Week of March 14: 847

Pending home sales are up again, which is a sign that demand is steady in the D.C. housing market. But how are new listings looking? And what percentage of these listings are new construction? Let’s review that in the next section.

New listings rise for second straight week

Altos reviews real estate listings data to determine seller activity in the D.C housing market. New listings are the homes that were listed for sale in a given week and added to the active inventory.

New listings ramped up during the week ending March 14. About 674 single-family homes and 619 condominiums are on the market in D.C. That’s an increase of about 12% from the prior week. New listings volume ramps up during the spring and sellers appear to be active.

New construction is also common in the D.C. area. As of March 21, there were 449 new construction listings in the region, according to IDX data for the D.C. housing market.

The IDX data is updated irregularly, but in October 2024, there were 412 new construction homes on the market. If Trump’s tariffs hold steady, this number may drop and prices will ramp up as a result. Here’s the historical data for new listings:

Inventory levels are up again

This week’s data on inventory in the D.C. housing market offers a window into ongoing market trends.

Inventory for single-family homes in the D.C. housing market jumped to 4,024, which is up 6.36% from the week before. Last week’s data shows a similar increase, so the upward trend appears to be consistent.

Where is the DC market headed?

Price reductions were the same as the week before, according to Altos. The percentage of homes with price reductions is 26%, which is historically low compared to what was seen at the same point last year.

Price reductions are an important demand indicator, and they are typically the earliest indicator of turmoil in the D.C. housing market.

Jalbert said that 25% tariffs will impact Canadian and Mexican goods, although they are unlikely to last long term. Despite that, reciprocal tariffs that are set to go into effect April 2 could remain, impacting industries like construction that already suffers from a labor shortages.

“If you’re talking about stagflation, there could be a one-two punch of higher building material costs. And if we see a sustained effort to ramp up deportations of undocumented workers — who make up a significant share of the construction workforce — that’s really going to limit our ability to build homes,” he said.

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