Architecture Services
Sourcing Guide & Market Intelligence

Canada and Mexico tariffs to significantly impact the construction industry

• On March 4, 2025, the United States imposed a 25.0% tariff on goods imported from Mexico and Canada, which applies in addition to other duties or fees that are in place, with limited exceptions for construction products. The levy on oil and gas imports from Canada was limited to 10.0%.
• However, as of March 6, 2025, all goods compliant with the United States-Mexico-Canada Agreement (USMCA) will be exempt from tariffs until April 2, 2025. In addition, on March 12, the United States raised tariffs on steel and aluminum imports from all countries to 25.0%, including Mexico and Canada.
• After the tariff took effect, Canada immediately imposed 25.0% tariffs on goods imported from the United States. Mexico also announced plans to impose retaliatory tariffs and non-tariff measures on imports from the United States later this month.
• According to Realtor.com, around 70.0% of the softwood lumber and drywall gypsum (used for drywall) used in residential construction is imported from Canada and Mexico, respectively. Tariffs on lumber and other building and construction materials will increase the cost of construction.
• According to the National Association of Home Builders, new tariffs on Canada and Mexico could raise the cost of imported construction materials by up to $4.0 billion in 2025. In addition, construction equipment prices will rise as many manufacturers produce or source parts or machines from countries like Mexico.

Labor markets tighten slightly following interest rate cuts

• In recent months, the unemployment rate has remained stable at 4.1%, a still relatively low mark, though higher than it was in prior years. This trend indicates sustained competitiveness in the overall labor market, though certain industries have experienced waning labor demand.
• The latest jobs report indicates that major industries, such as construction, retail, leisure & hospitality, and transportation & warehousing, no longer face hiring shortfalls.
• However, worker shortages persist in the manufacturing and healthcare sectors, as 29.9% and 50.0% of job openings in each sector remained unfilled in August, respectively.
• In blue-collar fields, 33.9%, 70.1%, and 49.9% of job openings for information, finance, and professional service roles remained unfilled in September, though unfilled positions in these occupations can also be partially attributed to the longer average hiring times in these industries.

Homebuilding falls as interest rate cuts fail to reduce mortgage rates

• In the last three months, the number of new housing construction projects fell by 6.5%, which has translated to a 1.8% decrease in residential construction spending.
• Sustained high interest rates have been depressing demand for residential construction because consumers face higher financing costs when purchasing a new home or investing in renovations.
• While the Federal Reserve (Fed) cut the federal funds rate, the interest rate banks face when borrowing money from each other, in recent months, these cuts have not translated to significantly lower mortgage rates for consumers.
• Instead, increasing perceptions of general economic risk among banks have led them to raise mortgage rates to 6.9%, a significant departure from the federal funds rate.
• However, a study by Hines Group indicates that there is currently a 3.2-million-unit shortage in the US housing market, meaning declining interest rates are likely to translate to continued increases in homebuilding due to this solid underlying demand.