Want more housing market stories from Lance LambertsResiClubin your inbox?Subscribeto theResiClubnewsletter.This week, the U.S. is set to impose new tariffs as part of President Donald Trumps trade policy. Imports from Canada and Mexico are facing an additional 25% tariffwith the only exception being energy resources from Canada, which will have a 10% tariff addedwhile imports from China will be subject to a new 10% tariff.Although there were signs on Monday that at least some of these tariffs may be delayed, builders have already been feeling anxious. Indeed, on Friday the National Association of Home Builders (NAHB) published a public letter asking Trump to exempt building materials from the increased tariffs on Canada and Mexico, citing their harmful effect on housing affordability.The reason for the unease: Even before the tariff announcement, homebuilders were feeling pinched by spiked construction and labor costsjust look at the National Association of Home Builders latest national averages for itemized costs in each stage of construction for a new single-family home.In 2022, the average sales price of new single-family homes sampled by NAHB was $644,750 and includes costs for construction, the finished lot, financing, overhead and general expenses, marketing, sales commission, and profit. Total construction costs for the average new single-family home included in the survey was $392,241.In 2024, the average sales price of new single-family homes sampled by NAHB was $665,298 and total construction costs for the average new single-family home included in the survey was $428,215.Among new builds included in the survey, thats a 3.2% jump for average sales price and a 9.2% jump for total construction costs.Since mortgage rates spiked in late spring 2022, lower housing demandalong with builders in many markets offering more incentives and affordability adjustments to attract buyershas squeezed margins off the historic highs achieved during the pandemic housing boom. For some homebuilders, rising input and construction costs have further compressed margins over the past two years. See the chart below. (Note: Each category below includes all the costs paid by a builder that go into a particular item, including labor costs paid directly by the general contractor, the cost of hiring subcontractors, and the cost of materials, however they are purchased.)Homebuilders have seen one major area of relief: framing. During the pandemic housing boom, a surge in housing demand and remodeling demand collided with supply chain disruptions, sending lumber prices to historic highs. Sawmills, which had cut production early in the pandemic expecting a slowdown, struggled to keep up as demand soared, causing lumber prices to skyrocket.Lumber prices came back down as supply chains improved and demand for remodeling softened, thus lowering costs for framing.Indeed, the price per thousand board feet of lumber, currently at $592, is 58.3% below its peak of $1,419 in May 2021. Some lumber futures contracts at the time in spring 2021 were trading for over $1,700 per thousand board feet.The problem for homebuilders: The one area of price relieflumberalso happens to be one of the most vulnerable to a price squeeze if the new U.S. tariffs on Canadian goods remain in place.Around 30% of the softwood lumber used in the U.S. is imported from Canada. This softwood lumber already faces an average duty of 15%, which could rise to 40% if Trumps additional tariffs take effect.