What Do 2025 Tariffs Mean for the Real Estate Market?

The 2025 presidential return of Donald Trump has ignited a familiar yet freshly disruptive economic policy: tariffs. While often talked about in terms of geopolitics or stock market performance, one less-covered but extremely vital impact is on the real estate industry. In fact, the real estate world may be one of the most affected industries while already experiencing unique issues of its own. Whether you’re a hopeful homebuyer, a seasoned investor, a Chicago developer, or an agent navigating these waters, you’re likely asking: How are tariffs affecting the real estate market?

The answer? They’re reshaping it from the ground up—literally.

With fresh import 2025 tariffs and levies imposed on major trade partners such as China, Canada, and Mexico, we’re seeing a chain reaction of rising construction costs, elevated home prices, supply constraints, and cautious market sentiment. This article dives deep into each of these ripple effects, how it is affecting the real estate market, and what this means for buyers, sellers, investors, builders, and real estate agents in Chicago and beyond. 

How 2025 Tariffs Are Affecting the Real Estate Market

Rising Construction Costs: Tariffs as a Tax on Building

One of the most direct consequences of the 2025 tariffs is the cost of building materials. Tariffs on lumber (much of which the U.S. imports from Canada), steel, aluminum, and even drywall from Mexico are pushing construction expenses upward. According to the National Association of Home Builders (NAHB), tariffs have already added an average of $9,200 to the cost of a newly built home.

In Chicago, where affordable housing and multifamily developments are central to the city’s housing strategy, these added costs aren’t just a line-item issue—they’re deal-breakers. For builders, projects are delayed, shaving down profit margins, and looking for domestic suppliers who are, ironically, also raising prices due to reduced competition.

In Chicago, we can see a local example of this growing issue in the market with the Lincoln Yards development. One of the largest ongoing projects in the city has reportedly seen a 7–10% spike (City of Chicago) in estimated material costs since Q1 due to tariff-related hikes. Sterling Bay, the project developer, has had to sell a portion of the development to a bank, showing how even large-scale construction projects with an abundance of financial backing can be victims of the rising costs across industries.

Home Prices Are Creeping Higher

The ripple effect? Homebuyers are footing the bill. With construction getting pricier and new home development slowing, the already limited inventory is becoming more competitive. Nationwide, real estate analysts forecast a 4–6% increase (National Association of Home Builders) in home prices attributed directly to tariffs. For a mid-priced home at $400,000, that’s up to $24,000 more (that’s about the price of a Toyota Corolla).

In Chicago neighborhoods like West Loop and Avondale, where first-time buyers were starting to re-enter the market after the 2022–2024 rate hike shock, this resurgence is being undercut by affordability fears. Agents report that “starter homes” are now priced just out of reach for many buyers, especially when factoring in elevated mortgage rates, forcing potential first-time buyers to look into other areas and neighborhoods. During this uncertain time in the market, many homeowners or renters find themselves altering life plans to ensure they don’t find themselves underwater financially.

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The Mortgage Rate Stall: No Relief in Sight

Mortgage rates remain in the 6.75–7.25% range, which continues to suppress borrowing power, making it more difficult for renters looking to become first-time homebuyers to make the jump. Buyers who might have qualified for a $450,000 home in 2022 may now be capped at $375,000, not just because of rates, but home prices are inching higher.

Although the Federal Reserve had planned to begin cutting rates in mid-2025, inflationary pressure from the tariffs may delay those cuts. Inflation caused by higher costs of goods and services, including housing, can force the Fed to keep rates elevated longer.

For agents, this means recalibrating buyer expectations for both the desired budget and location. For sellers, especially in suburban Chicagoland areas like Naperville or Schaumburg, this translates to longer days on market unless pricing strategies are adjusted swiftly, although due to the low inventory and demand, some sellers may find themselves getting offers subistainlly higher than the listing price, like everything in real estate, it’s all about timing and location.

Investor Sentiment: Cautious Capital in a Volatile Climate

Real estate investors, particularly those interested in residential developments or commercial projects, are keeping their wallets close. While they are not necessarily pulling out, trends certainly show that they are slowing down. Builders who once broke ground without hesitation are now asking, “What if tariffs increase again next quarter?”. The uncertainty makes it difficult for builders to accurately price out builds or determine timelines for projects, which makes investors lose confidence and pull back funding.

Even larger REITs (Real Estate Investment Trusts) are expressing hesitance with an otherwise stable method of project finding. Though multifamily investments remain relatively strong in many neighborhoods in Chicago due to high rental demand, uncertainty around build costs and regulatory shifts has many projects stalled in planning. 

Chicago Market Impacts: A Closer Look at the Local Market

Chicago’s real estate market isn’t immune to national policy shifts, but it does have a few protective factors. The metro area still boasts relatively affordable housing compared to coastal cities, and the ongoing migration from larger, more expensive metros keeps demand steady. However, Chicago builders and property flippers face acute challenges that have slowed projects down. We can see evidence of this when looking at, such as the number of multifamily building permits declined 13% (according to the City of Chicago) in Q1 2025 and is expected to dip even lower in Q2 and beyond. Chicago builders are facing some acute challenges that are slowing things down, such as:

• Lumber shortages are having a massive impact, hitting West and South Side developments particularly hard.
• Labor shortages exacerbated by tightened immigration policies, are delaying renovations, conversions, and new construction.
• Higher materials costs for metals, drywall, fixtures, appliances, and other essential building materials.
• Reduced access to capital for small developers and builders makes it financially unfeasible to continue some projects.

These conditions point to a cautious, but not collapsing market. Buyers still want in, and sellers still have valuable equity. But deals are taking longer, margins are thinner, and everyone’s watching policy updates like stock tickers.

What Buyers Should Know

The 2025 tariffs and market present new challenges for homebuyers, especially with rising construction costs and uncertain interest rates. Smart planning and timing can make a big difference in affordability and experience.

• Plan for Longer Timelines: Homebuying, especially in a seller’s market with a slowdown in new construction, may take more time.
• Budget for Higher Prices: Tariffs on building materials may drive up listing prices—factor that into your pre-approval and negotiations.
• Act Decisively: Desirable properties are still moving fast in many areas; being pre-approved and ready to act can give you a competitive edge.
• Lock In Rates Early: If you find a good mortgage rate, consider locking it in before the next Fed meeting.
• Negotiate Incentives: Many builders are offering perks to offset rising prices.

What Sellers Should Do

In a market where buyer budgets are tight and pricing sensitivity is high, sellers need to approach their listings with strategy and flexibility. Presentation and positioning are key to standing out.

• Price Smart: Overpricing can stall your sale in this affordability-sensitive market.
• Stage for Maximum Value. With fewer buyers able to stretch budgets, perception matters more than ever.
• Be Prepared To Wait: With all the uncertainty, it’s important to keep your timelines and expectations realistic. 
• Work with Experienced Agents. Navigating this market requires strategic pricing and strong marketing, especially in competitive neighborhoods. Contact a Pearson Realty Group agent today to get started.

What Real Estate Agents and Brokers Should Watch

For industry professionals, staying ahead of shifting trends in inventory, construction, and agent movement is critical. Now is the time to adapt, build relationships, and identify new opportunities. Our advice is to:

• Track Inventory Levels: Track which neighborhoods are heating up or cooling down faster due to economic pressures.
  • Monitor Construction Delays Stay informed on where material or labor shortages are slowing down developments, it could affect buyer timelines and listing inventory.
• Advise Investors Strategically: Rising build costs may shift investor interest from flips to long-term holds; help clients pivot accordingly.
• Stay Educated on Policy: Tariffs, interest rate changes, and immigration shifts are reshaping the market; being the agent who can explain them is a huge competitive edge.
• Double Down on Follow-Up: In a slower market, consistent communication with leads and clients is even more critical to close deals for those still looking.

FAQs on How Trump’s 2025 Tariffs Are Affecting the Real Estate Market

Will home prices continue rising in 2025 because of tariffs?
Yes, many analysts expect prices to rise between 4–6% due to increased material and labor costs caused by tariffs.

Are mortgage rates expected to go down this year?
Not immediately. Inflationary pressures from tariffs could keep rates in the 6.5–7.5% range through the end of 2025.

How do tariffs impact buyers directly?
Buyers face higher prices for new and existing homes and higher borrowing costs, reducing overall affordability.

Will the tariffs affect the rental market too?
Yes. With fewer homes being built, rental demand may spike, pushing rents up in competitive urban markets like Chicago.

Are there regions less affected by the tariffs?
Markets with more domestic supply chains or surplus inventory (some parts of the Midwest) may feel less impact, but Chicago is still seeing the ripple effects.

Should I wait to buy or sell because of the tariffs?
It depends on your goals. Waiting might cost more in the long run if prices and rates continue to climb. Consulting a real estate expert is your best bet.

The market may be changing, but opportunity still lives here.

The new 2025 tariffs are not just a simple trade policy, they’re a pressure valve on America’s housing market. In Chicago and beyond, the effects are tangible: homes cost more, deals take longer, and builders are recalculating every move. The ripple effects of the rising construction costs and limited housing inventory have caused everyone in the real estate industry to take a moment to step back and reevaluate plans and projects.

For buyers, this means stepping into the market with eyes wide open. For sellers, it’s about pricing with precision and timing. For agents and brokers, it’s a season of adaptation—and a powerful time to show value through expertise.

Pearson Realty Group stands ready to guide you through these shifting times. Whether you’re looking to buy, sell, or invest, we are here to provide expert industry insights, local market knowledge, and unwavering dedication to finding your dream property. If you’re a Chicago real estate agent, join a brokerage that stays ahead of the curve with cutting-edge technology and comprehensive marketing support. Learn more about becoming a Pearson Realty Group today.

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