Tariffs have the potential to create a massive impact on the housing market. Many experts believe tariffs will lead to higher home prices, worsening the already challenging homebuying market.
The current president has proposed a series of different tariff scenarios, including universal tariffs and variable tariffs on goods from specific countries. The scenarios are constantly changing and are often altered almost immediately after being proposed.
What exactly is a tariff?
“Tariffs are taxes collected by the federal government on companies importing goods,” says Mark Hamrick at Bankrate. A tariff on Mexico isn’t a fee paid by the Mexican government, but rather a tax paid by an American company for bringing Mexican products into the United States. They can then choose to pass some (or all) of that additional cost on to the consumer, causing home prices to jump.
Construction materials
“Any tariffs implemented on construction materials, especially if they are difficult to substitute away from by importing from other countries, would likely have an inflationary effect, making building and renovating homes more expensive,” says Chen Zhao, senior manager of economics at Redfin.
The National Association of Home Builders (NAHB) offered specifics in a February 1 statement: “More than 70 percent of the imports of softwood lumber and gypsum (used for drywall) come from Canada and Mexico, respectively”.
“Tariffs on building materials increase the cost of construction, and consumers end up paying in the form of higher home prices.” — Carl Harris, Chairman, NAHB
Consider also the potential response from other countries, who could issue retaliatory tariffs on goods imported from the United States, further complicating an already uncertain situation.
Mortgage rates
Along with higher construction and renovation costs, tariffs could curb affordability even more by resulting in higher mortgage rates. “As [tariffs] lead to higher prices and higher inflation, that could affect both short-term and long-term rates.
Homebuying tips for uncertain times
There are a few smart moves homebuyers can make regardless of the political or economic climate, even when prices are high and the future is uncertain. If you are looking to buy a home despite the times, here are a few basic tips to follow:
- Shop around for the best rate: Different mortgage lenders can offer very different rates. Shopping around to make sure you get the best deal is crucial. A lower rate can save you thousands over the term of your loan.
- Check your credit score: The higher your credit score, the lower the rate you’re likely to be eligible for. If yours is on the low side, consider taking some time to pay down your bills and build up your score before you begin your house hunt.
- Rethink your desired location: Real estate is a very local game, and housing prices can vary widely from one town to the next, or even one neighborhood to the next. Consider expanding your geographic boundaries a bit to see if you can get a better deal just outside your ideal location, rather than right in the heart of it.
- Consider a condo: Single-family homes typically cost more than a condo or townhome. These options get you on the homeownership ladder for much less money, and you’re still building equity just as you would with a freestanding house.
If you’re on the fence about buying, call your trusted Realtor for additional advice!
