Tariffs could bump up home prices by $10K in metro Phoenix

Source: Phoenix Business Journal

Homebuilders are expecting tariffs on certain construction materials to impact their costs. While the effects won’t be immediate, price increases could come soon.

Homes currently under construction are being built with materials purchased before tariffs kicked in, said Ken Peterson, vice president of sales and marketing for Shea Homes Arizona.

Peterson is expecting tariffs to eventually add $1.50 to $2 a square foot to Shea Homes houses it builds, for a total increase of anywhere between $8,000 and $10,000.

“Today, since there is inventory stock from the builders, there’s an opportunity to get a home at an attractive interest rate and at a lower price,” Peterson said.

Over the past couple of years, homebuilders have been offering incentives such as rate buy-downs that have helped homeowners afford new homes at a time when mortgage interest rates had been hovering as high as the 7% range. Homebuilders have spent anywhere from $40,000 to $60,000 on a $500,000 home to help bring interest rates down for homebuyers.

Tariffs could be creating a silver lining for the industry; as economic growth slows, mortgage rates could drop further. Usually when the 10-year Treasury yield falls, the 30-year mortgage rate also drops, Peterson said. That also helps the homebuilders when they offer rate buy-down incentives.

“A lowering interest rate also lowers points to buy down interest rates,” he said. “That makes it better for us because it’s less money we have to pay to buy down the interest rates.”

The 30-year fixed-rate mortgage continues to tick down, according to Freddie Mac, which showed a 6.64% mortgage interest rate for a 30-year fixed-rate mortgage as of April 3.

Builders offer incentives for current inventory

Keith Mishkin, president and broker of Cambridge Properties, already is seeing other industries raise their prices for products they built before tariffs kicked in.

“Yesterday, my sister went to buy a Toyota RAV 4 rather than wait two months from now,” Mishkin said. “Dealers were trying to charge more for that car.”

Homebuyers find themselves in a more enviable position, at least until tariffs raise the prices of construction materials.

Homebuilders are able to offer incentives for their current inventory — homes that are already completed. Half of Shea Homes’ sales are inventory homes, Peterson said.

In 2024, Shea Homes delivered 1,192 homes in Arizona. It has 13 active communities and five more coming soon. Shea also has its Trilogy active adult division with four active communities.

“When you buy an inventory home, the day you buy it, you lock in a rate and it costs us less money and it costs the customer less money,” Peterson said.

Tariffs don’t impact those inventory homes because the materials were purchased before tariffs were in place. Arizona homebuilders Meritage Homes Corp. and Taylor Morrison Home Corp. were among the Grand Canyon State’s public companies that performed best in the wake of the Trump administration’s latest tariffs.

Up until now, homebuilders have done a good job of keeping prices as affordable as possible, said Jim Daniel, president of R.L. Brown Housing Reports.

“There hasn’t been a lot of fat in closings,” Daniel said. “It’s pretty tight.”

Mishkin added that the housing market “is in balance right now, where there’s not too much supply.”

“Phoenix leads the market in our nation as one of the top three creators of jobs in the country,” Mishkin said. “As a result of that, we continue to create demand for housing.”