How Will Changes to NAFTA Affect the U.S. Housing Market?
The U.S. housing market propels the success of lenders, title insurance companies, real estate and construction professionals, as well as other essential supporting businesses. Keeping up with the latest news surrounding its health is just good business. The news surrounding NAFTA is no exception.
What is NAFTA?
The North American Free Trade Agreement (NAFTA) entered into force on January 1, 1994, progressively eliminating tariffs on all goods traded with Mexico and Canada, with a few agricultural product exceptions. The duties and quantitative restrictions were completely eliminated by 2008. The chapters of the agreement also included protection of intellectual property rights, investments and more.
The intent of the new negotiations, announced on May 18th, 2017: “the United States seeks to support higher-paying jobs in the United States and to grow the U.S. economy by improving U.S. opportunities to trade with Canada and Mexico.”
With recent talks over the summer and upcoming meetings, including ones scheduled for December and late January, concerns about the potential effects on the housing industry became more real. The benchmark futures for lumber jumped to its highest in four and a half years in October. As the U.S. is the largest importer of softwood lumber in Canada, these numbers matter.
Though lumber is a small share of construction costs, coupled with other factors, it could cause difficult disruptions to the industry. Other key products such as building materials and cement may also be affected. CEMEX of Mexico is a significant producer of cement. Depending on NAFTA’s future, multiple supply chains may face some challenges and lead to an increase in housing costs.
Multilateral negotiations and subsequent Congressional activity is often a slow and sometimes cumbersome process. Even with no clear path/changes set in place yet, there are things that the housing industry is doing to help protect margins.
The costs of land and labor are increasing and creating shortages in some markets. In response, the construction of smaller single-family homes are on the rise and certain economists are suggesting a shift to higher-end, more expensive homes too.
It is not necessary to ring the alarm bells yet, but Industry professionals across the board should keep well-informed in the sometimes dizzying 24-hour news cycle. There are three countries’ interests at stake and the process is bound to take some time. Flexibility with long-term business strategies is key. Communicate frequently with strategic business partners in anticipation of changes and be proactive with process improvements and operational efficiencies to help control costs in the meantime.
U.S., Mexican, and Canadian officials are beginning talks on December 11th and set to run through December 15th, followed up by late January negotiations in Montreal, Quebec.
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