By Daniel Kaufman | Daniel Kaufman Real Estate

In a move that caught the housing industry off guard, the U.S. Department of Commerce has announced it will more than double tariffs on Canadian softwood lumber—from 14.5% to a staggering 34.45%. The news sent shockwaves through the homebuilding sector, triggering a sharp selloff in homebuilder stocks on Monday and raising serious concerns about cost inflation at a time when the housing market is already navigating economic headwinds.

For those of us deeply involved in housing development, including through our family office’s investment in KB Home, this escalation in material costs is more than just a macroeconomic headline—it’s a real-world squeeze on margins, pricing strategy, and project viability.

Homebuilder Stocks Slide, KB Home Among Those Hit

The market reaction was swift. Shares of major publicly traded builders like D.R. Horton, Lennar, PulteGroup, and Toll Brothers dropped between 3.5% and 6.1% on Monday. KB Home, a core holding of the Kaufman family office, was not spared. Its stock slid over 4% by close, reflecting investor concern that higher input costs—particularly for lumber-heavy single-family and townhome product—could crimp margins moving forward.

Despite recent strong earnings and a healthy backlog, KB Home now faces the dual challenge of managing cost volatility and adapting to broader market uncertainty, including rising recession risk and a shifting interest rate environment.

Why These Tariffs Matter to Builders

Canadian softwood lumber remains a foundational material for residential construction in the U.S., particularly for wood-framed multifamily and townhome developments. With tariffs now pushing total duties to over one-third of the import price, the cost implications are significant.

According to a recent survey of national builders, the average increase in hard construction costs per home could exceed $9,200—a substantial amount in markets where affordability is already strained.

For developers with active pipelines, especially in urban infill or workforce housing segments, this spike threatens to derail budgets and timelines. While large builders like KB Home have scale advantages and stronger supplier relationships, even they can’t fully shield themselves from cost shocks of this magnitude.

The Broader Market Context: Recession Risk Looms

Overlaying this tariff surprise is a growing concern about a potential recession. Over the weekend, Moody’s Analytics Chief Economist Mark Zandi raised his estimate of a U.S. recession in 2025 to 60%, citing the ripple effects of ongoing trade tensions and declining consumer confidence.

Tariffs don’t operate in a vacuum—they ripple through the economy, influencing everything from builder sentiment to hiring plans. As Joel Berner of Realtor.com points out, “Builders are reluctant to deliver inventory they feel like they won’t be able to sell at the prices they want.” This caution, combined with higher material costs, could further slow housing starts and deepen existing supply shortages.

Implications for Multifamily and Townhome Construction

For real estate professionals operating in the multifamily and townhome segments, the consequences of this policy shift are immediate and multifaceted:

Material budgets will need to be revisited. Developers must now reassess project pro formas that were built on 2023 or early 2024 assumptions. Value engineering and alternative materials may take on renewed urgency. Multifamily projects—especially stick-built 3- to 5-story assets—are particularly vulnerable. These projects are heavily dependent on lumber, and tighter margins could mean deferred starts or revised scope. Townhome developments, often a middle-ground product between single-family and vertical multifamily, may face disproportionate impact. Their reliance on traditional framing methods and their sensitivity to price points make them especially exposed to both cost pressures and buyer hesitation.

At Kaufman Development, we’re actively reassessing our exposure and construction timelines across current projects, particularly in land-constrained, high-demand markets where the margin of error has narrowed significantly.

Looking Ahead

While the market absorbs this latest shock, one thing is clear: housing policy, trade decisions, and global market volatility are now inseparable from daily real estate strategy.

For developers and investors, the path forward demands agility—reworking budgets, reconsidering starts, and staying deeply informed. At Daniel Kaufman Real Estate, we remain focused on identifying resilient opportunities, advocating for smart housing policy, and staying ahead of market shifts that impact builders, investors, and the communities we serve.

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Daniel Kaufman is the founder of Kaufman Development and oversees investments and development strategies for the Kaufman family office. For more housing market insights, subscribe at danielkaufmanre.com.