How Tariffs Are Reshaping Bay Area Real Estate

The local real estate landscape here in the Bay Area is expected to undergo significant changes due to potential tariffs on construction materials. These economic policies have far-reaching effects on housing affordability, inventory, and development across the region. As we examine the current state of the market, potential homebuyers must understand the urgency of acting sooner rather than later.

Impact on Construction Costs and Home Prices

Implementing a 25% tariff on Canadian softwood lumber and Mexican gypsum will directly increase construction expenses. A typical $200,000 lumber shipment will now cost $250,000 with tariffs. Overall material costs will see a spike by 7.5%, increasing total construction budgets by 3-4%. Estimates suggest tariffs are adding $15,000 to $30,000 per home, particularly squeezing mid-sized developers. Local markets like the Bay Area, already struggling with limited land and strict regulations, are disproportionately affected by these tariffs.

Analysis of housing permits in the Peninsula and South Bay

The effects of tariffs can be seen in the decreasing housing permits across different cities in the Bay Area:

• San Jose: 3,104 permits issued, representing a 10% year-over-year decline.
• San Francisco: 3,055 permits, down 3% from the previous year.
• Santa Clara County: While completing 5,586 units in 2023, permits rose 12% for luxury and mixed-use developments.
• Smaller Cities: Foster City (7 permits), Albany (4), and Sausalito (3) fell significantly short of state mandates.

It is also important to note that 85% of the 2023 permits in smaller cities were ADUs, and thus, the shift was towards creating more rental income for homeowners and supplying compact affordable housing.

Labor shortages and supply restraints

About 30% of construction workers in the U.S. are immigrants, and many are undocumented. The potential mass deportations may worsen existing labor shortages. The South Bay has 28% fewer skilled workers than in 2019, which has caused delays in Sunnyvale and Mountain View cities

Mortgage Rates and Inflation

Tariffs are contributing to broader inflation, which may prompt the Federal Reserve to maintain higher interest rates. With mortgage rates already in mid 6%, this could further dampen buyer affordability.

Affordable Housing Crisis

Affordable housing developers warn that tariff-driven cost hikes could lead to widespread project cancellations or delays. In East San Jose, 82% of 2024 permits were for affordable units, but waitlists exceed 3 years. Meanwhile, Cupertino's median home price stands at $2.8 million, showing a slight 1.2% month-over-month decrease as Apple's hybrid work policies cool demand.

Market Dynamics in 2025

While some forecasts suggest a slight dip in Bay Area home prices (e.g., 1.8% in San Francisco). However, tariffs and supply constraints may oppose these declines. Tech-sector demand and cash buyers may sustain high prices despite elevated mortgage rates. Rising ownership costs may push more residents toward renting, potentially tightening the rental market.

Why Bay Area home buyers should act now?

Delaying a purchase could mean paying more later.

Rising Home Prices and Limited Inventory

The Bay Area market appears to be regaining its momentum with shrinking supply in San Jose and rising pressure on prices in Santa Clara County. Since supply is constrained, prices are likely to continue their ascent. Waiting can result in paying more for the same property at a later time.

Competitive Advantage in a Tight Market

Acting quickly can give buyers a significant edge. Be ready to move fast when the right house comes along by getting pre-approved for a mortgage. In popular neighborhoods with limited inventory, hesitation can mean missing out on your dream home.

Financial Benefits of Buying Now

Although rates have increased, they are still relatively low by historical standards. Even a small boost can have a major impact on the monthly mortgage payment. Each week of delay is one less week to take advantage of the market and potentially lose money. It is often a good financial decision to build equity early on, particularly in a market that has great long-term growth potential.

Market Dynamics May Shift

The current market conditions favor decisive action. The tech-driven economy of the Bay Area may continue to support strong housing demand. Multiple offers and limited-time incentives are creating a sense of urgency in the housing market. Waiting too long might mean facing even more competition as other buyers enter the market.

Conclusion

Tariffs are amplifying the Bay Area's existing housing challenges, including high prices, limited supply, and labor shortages. While the region's tech-driven economy may buffer some effects, policymakers must balance trade objectives with housing affordability. For prospective buyers, the current Bay Area market dynamics suggest that acting with a sense of urgency could be beneficial. By moving quickly, potential buyers can take advantage of current prices, secure favorable financing terms, and position themselves ahead of future market shifts. Remember, in real estate, timing is everything – and right now, the clock is ticking for Bay Area home buyers.