The Housing Market is Still Rough. Tariffs Likely Won’t Help.

If it’s not a buyer’s market, and it’s not a seller’s market, then what is it?

On Thursday, the National Realtors Association released new data that showed its Pending Home Sale Index — a proxy for home sales — fell to an all-time low in January. That’s just a day after the US Commerce Department said new home sales dropped over 10% from December to January, missing expectations. All while new supply is at its highest level since 2007. So will prospective buyers ever get an edge? Tough to say — though experts seem to agree that a fresh batch of tariffs, also confirmed by the White House on Thursday, aren’t likely to help.

Market Conditions

Simply put: Too many prospective buyers remain priced out of the market. Per the Commerce Department, the median home price increased almost 4% year-over-year last month to $446,300, the highest mark since October 2022. And despite a 100 basis-point cut to federal interest rates since September, mortgage rates remain stubbornly high (though down slightly, from around 7% to 6.85% from December to January, according to Freddie Mac data). Mix in economic uncertainty, and it’s easy to see why buyers are skittish.

The law of supply and demand should help: Just check out Austin, Texas, where a building boom has contributed to a 22% decline in rents in January from their August 2023 peak, according to a recent Bloomberg analysis. And the good news is that, nationally, construction on 115,000 houses was completed in January, a high since August 2009, while an all-time record 106,000 projects are waiting to begin. But the good news, well, it comes with some bad news:

• High inventory tends to mean builders grow reluctant to start new projects. And the National Association of Homebuilders (NAHB) in its latest report last week said that builder confidence has fallen to a five-month low.
• That’s partially due to tariffs, and Trump 2.0 said yesterday its planned 25% tariffs on goods from Mexico and Canada plus additional 10% tariffs on goods from China will begin on Tuesday. According to the NAHB, 7% of all goods used in new home construction are imported, while 32% of home appliances are imported.

Price Go Up: In other words, home prices are likely to keep going up. By how much exactly? According to real estate data firm CoreLogic, tariffs on building materials could hike new home construction costs by as much as $22,000. Meanwhile, Morgan Stanley economists think tariffs could increase inflation, estimating the Personal Consumption Expenditures index could soon rise by as much as 0.6%. Which is likely going to deter the Federal Reserve from lowering rates at its next meeting. Which means mortgage rates are likely to stay elevated. Which means prospective home buyers… well. They already know how they’re feeling.