Navigating Uncertainty

Sentiment at the start of 2025 was positive with companies reporting healthy backlogs and expecting growth coming off solid performance in 2024. More recently however, the tone has shifted to one of caution amid broader uncertainty, partly driven by policies of the Trump administration that are creating near-term headwinds in the market. We took a deeper dive into the “state of the market” through conversations with industry participants to gauge current confidence levels and their outlook for 2025.

Tariffs and surcharges

Tariffs have become the hot button issue for executives across the building products market. Some companies are reexamining their supply chains and considering alternative sources; however, certain materials have limited substitutes. According to industry sources, an estimated 80% of U.S. softwood lumber imports come from Canada. Float glass currently doesn’t have a domestic source in Canada where window and door manufacturers are bracing for the next round of U.S. tariffs to be announced. 

“We’re certainly expecting some sort of medium-term tariff impact,” remarked Neil Fast, CEO at Loewen Windows, a supplier of premium windows and doors serving the luxury architectural market in Canada. Loewen has plans in place for multiple different tariff scenarios, Fast indicated. “Softwood, lumber, steel, wallboard, gypsum, all those materials have a high degree of cross border trade between the U.S. and Canada, and that’s going to be tricky. I feel like the entire supply chain serving the residential housing market is holding their breath right now.”

“Even with domestic suppliers, there is some ‘opportunism,’” says Kevin Madden, co-founder and managing partner at Saothair Capital Partners. “Pricing tends to increase across the market.” Saothair owns Pioneer Windows, a manufacturer of architectural aluminum products for high-end residential, commercial and institutional buildings, which it acquired in November 2024. “No one is fully insulated,” Fast adds. “We do think there’s going to be some pricing pressure here in the market. I’m really expecting sort of an off-cycle, mid-year price increase in the window and door business here.”

Given the prevalence of tariffs, most companies don’t anticipate having issues passing on those costs because everyone is going to be impacted by them. Ultimately, the higher construction costs will have ramifications on consumer spending with executives speaking to tempering demand over the intermediate term. “We’re starting to see some easing in our markets,” says Michael Barr, CEO of U.S.-based WeatherBarr Windows & Doors, a third-generation family business specializing in high-quality, custom vinyl windows and doors.

“To me, that’s consumer confidence. It’s certainly not a fundamental issue of whether we need houses or not. At the end of the day, the housing market has demand, but affordability is a problem.”

Barr cited the potential impact of tariff surcharges, in addition to higher prices on building materials, which is driving up housing inputs. Added to that is a shortage of reasonably priced homes, leading some consumers to pause on home buying and forgo large renovation projects until there is more visibility. “It does undermine consumer confidence because everything is going to get more expensive,” Barr adds. In the U.S., consumer confidence declined in March to its lowest level since February 2021 underpinned by concerns that rising inflation and Trump tariffs would undercut economic growth.

Affordability and inventory

Relief for borrowers would be a welcome catalyst in the U.S., where mortgage rates continue to remain above 6%, and despite expectations for interest rate cuts in sight, experts predict only modest easing keeping rates elevated in the 6% to 7% range through 2025. Mortgage rates in Canada have declined, with the prime rate now at 4.95%.

March heralded the formation of a Joint Task Force to identify public land suitable for residential development, marking a first step in the Trump administration’s promise to lower the cost of U.S. housing and expand housing supply. The U.S. Department of Housing and Urban Development will work alongside the Department of the Interior in this effort. “Lack of inventory remains one of the biggest barriers to affordability, driving up home prices and putting the dream of homeownership out of reach for too many Americans,” says Shannon McGahn, executive vice president and chief advocacy officer at the National Association of Realtors, in a statement. According to Brookings, the housing shortage stood at an estimated 4.9 million housing units in 2023.

Despite the near-term challenges, we continue to hold firm to a bullish outlook on the positive long-term fundamentals of the U.S. housing market and believe investors are underwriting to this thesis as well. This is confirmed by the demand we see in the building products M&A market as well as recent conversations with strategic and financial buyers.