Costlier supplies will shrink “razor thin” margins as iBuyers move into new markets
The United States and China are locked in a tit-for-tat trade war that will boost the price of materials that go into home renovation and construction. The higher costs come as iBuyers such as Zillow, Opendoor and Offerpad are expanding into new markets with plans for fixing up and reselling homes.
Many of the products iBuyers need to paint, repair and in some cases renovate kitchens and other rooms will become more expensive in the next few months as the U.S. importers who pay the tariffs pass on the added costs to American consumers. The National Association of Home Builders said tariffs will boost housing construction and renovation costs by $2.5 billion.
“In iBuying, it’s razor-thin margins anyway, so any sort of ripple in the pond has the potential to disrupt,” said Mike DelPrete, a real estate strategist who tracks the iBuying market.
That’s not necessarily a deal-killer for the biggest iBuyers, said DelPrete. Most are well-financed and don’t necessarily need to make a profit from each house they sell as they build out their business models, he said. Some, like Zillow, are hoping to generate profit in other ways, such as attracting mortgage customers as sellers move up to their next purchase, he said.
“What’s happening right now in iBuying is a land grab, and a lot of these companies don’t need to be profitable right away,” said DelPrete. “But if you’re a big iBuyer and your buying and selling thousands of homes a month, higher costs have a potential impact.”
Zillow is the iBuyer who is expanding the fastest. It purchased 898 houses and sold 414 in the first quarter, the company said in its earnings report last week. That was a gain of 80% and 200%, respectively, compared to the fourth quarter.
“In Q1, we received more than 35,000 seller requests, and that demand is rapidly accelerating,” CEO Rich Barton said on a conference call after the company reported its earnings to Wall Street. “We now receive one request every two minutes, which is nearly $200 million in potential transaction value per day.”
Zillow and the other iBuying companies cited declined to comment.
Last week, President Donald Trump hiked tariffs to 25% from 10% on $200 billion worth of Chinese goods. In retaliation, China announced plans to raise tariffs to 25% on $60 billion worth of U.S. products starting June 1. President Trump has threatened to expand tariffs to a further $300 billion of Chinese imports.
The construction imports from China now carrying a 25% tariff include: concrete, nails, screws, ceramic tiles, and asphalt roofing shingles, according to the National Association of Home Builders. Also on the list: light fixtures, kitchen cabinets, circular saw blades, stainless steel used for appliances and various types of raw materials that go into U.S. building products.
Tariffs, also known as duties or levies, are collected by U.S. Customs and Border Patrol agents from importers – U.S. businesses – as goods enter the country. In other words, no one is handing China a bill. Typically, those American importers pass the added cost to their distributors who eventually pass it on to the consumer at the end of the line – in the renovation industry, that’s the guy sent to Home Depot, Lowes or similar retailers to pick up supplies.
“To be clear, tariffs are taxes paid by American businesses and consumers, not by China,” said David French, senior vice president of government relations at the National Retail Federation.