Real Estate News - March 2025

Impact of U.S. Tariffs on the San Antonio Real Estate Market

The US recent tariffs on imports from Mexico, Canada, and China are poised to significantly impact the real estate market in San Antonio, Texas. These tariffs are expected to raise construction costs, potentially slow down development, and increase home prices.

Increased Construction Costs - The tariffs target essential building materials such as Canadian lumber, Mexican gypsum (used in drywall), and Chinese steel and aluminum. Approximately 7% of building materials in Texas are imported, and the National Association of Home Builders estimates that these tariffs could add between $7,500 to $22,000 to the average home price. This escalation in costs is likely to be passed on to homebuyers, further straining affordability in a market where median home prices have already risen over 30% since 2019.

Higher construction costs may lead developers to delay or cancel projects, exacerbating the existing housing shortage. This impacts the housing supply. Texas is currently facing a shortfall of approximately 300,000 homes. The increased expenses associated with tariffs could hinder efforts to address this deficit, making it more challenging for residents to find affordable housing.

The tariffs also affect commercial real estate. Mexican companies and individuals, who are significant investors in properties from Laredo to San Antonio, are reevaluating their investments due to the added costs. For instance, a Mexican client in the food industry seeking over 300,000 square feet of warehouse space is reconsidering their plans in light of the 25% tariff. Such uncertainties may lead to reduced demand for commercial properties and a slowdown in the market.

Beyond real estate, the tariffs are expected to increase prices on various goods, including groceries and automobiles, as businesses pass on the additional costs to consumers. This inflationary pressure could reduce disposable income, further impacting the housing market by diminishing potential buyers' purchasing power.

In summary, US tariffs are anticipated to elevate construction costs, constrain housing supply, and introduce uncertainties in both residential and commercial real estate markets in San Antonio. These factors collectively pose challenges to affordability and market stability in the region.

Multifamily Permits Decline, While Starts Hint at Stabilization

In February, multifamily permits declined by over 4% from January, reaching a seasonally adjusted annual rate (SAAR) of 404K units—nearly 16% lower than a year ago. Meanwhile, multifamily starts surged 12% from the previous month to 370K units, though they remained 6.5% below last February’s level. While SAAR data for multifamily starts has shown greater volatility than unadjusted figures, recent trends indicate potential stabilization.

Historically, SAAR figures tend to overstate starts during market upswings and underestimate them during downturns. However, the current alignment across data series suggests that multifamily starts may be nearing their cyclical low.

The number of multifamily units under construction has dropped 21% year-over-year to 754K but held steady from January. At the same time, completions declined 20.7% month-over-month and 15.8% from last year to 512K units.

Rising home prices, interest rates, and construction costs have also put pressure on single-family development. Single-family permits fell 3.4% year-over-year to 992K homes, while starts declined 2.3% from last year but increased 11.4% from January, reaching 1.108M units. Completions rose 7.1% for the month but remained slightly below last year’s level.

U.S. Housing Market Rebounds as Single-Family Construction Gains Momentum

Housing starts in the U.S. saw a strong recovery in February…

• Total housing starts increased over 11% year-over-year, reaching 1.5 million units, surpassing expectations.
• Single-family home starts climbed over 11% to 1.11 million units, marking the fastest pace in a year.
• Multifamily starts rose over 10%, reflecting renewed demand.
• Building permits fell to 1.46 million units, indicating some hesitation among builders.
• Builders continue to offer incentives, such as mortgage rate buydowns and price reductions, to attract buyers.
• The supply of new homes is at its highest level since 2007, exerting downward pressure on prices.
• The National Association of Home Builders sentiment index has dropped to its lowest point since August, signaling concerns about future demand.
• Builders are wary of potential tariffs on key materials like lumber, which could drive up costs and slow construction activity despite the recent growth.

While rising mortgage rates, increasing inventory, and tariff concerns pose potential headwinds, upcoming home sales data will provide a clearer picture of buyer demand. To sustain momentum, builders may need to maintain aggressive incentives to keep demand steady.