How Trump’s trade war creates housing headwinds

Uncertainty on rates and tariffs on homebuilding products points to higher prices and a soft sales market

By Jeff Lazerson | jlazerson@mortgagegrader.com | MortgageGrader.com | April 14, 2025

Article originally posted in Orange County Register on April 10, 2025

President Donald Trump’s global tariff policies are creating widespread economic upheaval.

Anybody watching Wall Street and reaction from our allies are probably left to wonder what consequences this tariff tirade will have on the U.S. economy and its housing market.

To help answer some of those questions, I asked several experts to weigh in.

Market upheaval

Chen Zhao, head of economic research at Redfin, sees a lot of volatility in the bond market, which mortgage rates tend to follow.

“There is a lot of uncertainty as to where rates are headed,” Zhao told me. “A 5% (fixed) rate or an 8% rate is totally believable.”

She thinks there is a 60%-70% chance of a recession if Trump sticks with high tariffs over the next six months. “If President Trump walks this back to 10%, then the odds of recession reduce to 30 to 40%,” she said.

Zhao said there is a higher risk of weaker home price growth or prices falling in recessionary times. “This will be three years at the bottom of the (home sales) transaction volume,” she said.

Tariffs and their effects

Mark Zandi, chief economist at Moody’s Analytics, struck a dour note on tariffs and the potential for a recession.

“Tariffs are a terribly bad idea. He (Trump) is asking American families to rectify unfair trade practices,” Zandi said. “It’s a tax increase in the form of higher prices for goods leading to higher inflation and a weaker economy.”

Zandi sees a 60% chance of a recession.

Such an economic decline would mean higher rates, higher unemployment and fewer jobs, all of which are headwinds to housing in Zandi’s view. “Home prices will flatten across the country.”

“Fed will sacrifice the economy to reduce inflation if they need to, by delaying rate cuts or raising rates if inflation picks up,” he said.

Jackie Benson, economist at Wells Fargo, told me the tariffs are likely to increase the cost of homebuilding — think wood and steel — and that raises the cost of home construction.

“Tariffs will add to cost pressure to already elevated prices to make home construction more expensive,” said Benson. “High uncertainty will prevail.”

Benson said tighter immigration policy also weighs on housing and would slow construction growth, since 26% of construction workers are immigrants.

Jordan Levine, chief economist at the California Association of Realtors, sees the situation we are in as self-inflicted.

“The labor shortage is not helping. A recession will help to alleviate wage pressures,” Levine said. “If the economy deteriorates substantially, and unemployment went up, rates will come down.”

Levine sees a 6% mortgage rate floor.

Mark Vitner, chief economist at Piedmont Crescent Capital, wonders how far Trump will push the envelope.

Calling the tariffs “one of the strangest things” he’s seen, Vitner said the duties slapped on allies abroad don’t instill “goodwill or leadership.”

“Hopefully Trump gets some wins that won’t wreck the global economy,” he said.

Vitner does believe that inflation fears are overblown, with the probability of recession at just 35%, even though he’s not optimistic about jobs.

“I wouldn’t be surprised if home prices level off,” he said. Mortgage rates will stay about the same as they are 6.75% to 7%.

A different view

Matt Schulz, chief consumer finance analyst at Lending Tree, believes tariffs are likely to push rates down.

“It makes for a tough situation for consumers with the uncertainty of the broader economy and employment,” said Schulz. “It’s chaotic and uncertain.”

My view

Real estate sales and mortgage originations have been anemic for more than two years. The only way I see the Trump tariffs changing the current housing economy is if the policy tanks the U.S. and global economy. It’s 50/50 whether this happens or not.

If the U.S. does find itself in a recession, a plethora of people will have to sell their homes after losing their jobs. Others will look to pull cash out for ‘just in case’ funds.  Home prices will flatten.

Mortgage rates will dip into the low 5% range. This is only because Trump will find a way to drop mortgage rates.

Freddie Mac rates update: The 30-year fixed rate averaged 6.62%, 2 basis points lower than last week. The 15-year fixed rate averaged 5.82%, unchanged from last week.

The Mortgage Bankers Association reported a 20% mortgage application increase compared with one week ago.

Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $806,500 loan, last year’s payment was $140 more than this week’s payment of $5,161.

What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with one point: A 30-year FHA at 5.875%, a 15-year conventional at 5.625%, a 30-year conventional at 6.5%, a 15-year high-balance conventional at 6.125% ($806,501 to $1,209,750 in LA and OC and $806,501 to $1,077,550 in San Diego), a 30-year high-balance conventional at 6.875% and a jumbo 30-year fixed at 6.99%.

Eye-catcher loan program of the week: A 40-year fixed rate mortgage, interest-only for the first 10 years, at 7.375% with 1 point cost.

Jeff Lazerson, president of Mortgage Grader, can be reached at 949-322-8640 or jlazerson@mortgagegrader.com.  His website is www.mortgagegrader.com.

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* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.