Trump's tariffs could increase home prices and mortgage rates, some experts say
Housing prices are soaring twice as fast as overall inflation. The average rate on a 30-year mortgage topped 7% in January for the first time since last spring. Observers as disparate as J.P. Morgan and the left-leaning nonprofit Center for American Progress have declared a "housing affordability crisis."
The cost crunch could last longer or even worsen, however, as a result of potential tariffs on Mexico and Canada, experts told ABC News.
The Trump administration threatened to impose 25% tariffs on Mexico and Canada, but the U.S. reached an agreement with each of those countries on Monday to pause the tariffs for one month.
Such duties would likely raise expenses for imported home-building materials, hiking construction costs and increasing home prices, some experts said. Meanwhile, they added, potential price increases for a range of goods across the economy could pressure the Fed to raise interest rates, which in turn would push mortgage rates even higher.
"There are a lot of questions about how we can deal with the housing affordability crisis -- these tariffs would do the exact opposite," Gregg Colburn, a real estate professor at the University of Washington, told ABC News.
In a series of social media posts over recent days, President Donald Trump said the tariffs target Canada, Mexico and China for hosting the manufacture and transport of illicit drugs that end up in the United States. In a Truth Social post on Sunday, Trump urged the three countries to address his concerns, while acknowledging the tariffs may cause some financial hardship within the U.S.
"WILL THERE BE SOME PAIN? YES, MAYBE (AND MAYBE NOT!). BUT WE WILL MAKE AMERICA GREAT AGAIN, AND IT WILL ALL BE WORTH THE PRICE THAT MUST BE PAID," Trump wrote.
In response to ABC News' request for comment, the White House said the policy would boost economic performance.
"In his first term, President Trump instituted tariffs that helped level the playing field for American industry and workers without hiking inflation. In his second term, he will again use tariffs to raise wages, create jobs, expand investment and deliver economic prosperity," White House spokesperson Kush Desai said.
Roughly 30% of softwood lumber used in the U.S. is made up of imports, which arrive primarily from Canada. Another component of home construction, wallboard, originates mostly in Mexico, according to tracking site Global Gypsum.
Experts said they expect the prices of soft lumber and wallboard to rise if tariffs on Mexico and Canada take effect, since importers typically pass along a share of the cost of those higher taxes to buyers.
In turn, the added homebuilding costs could push up home prices, putting some of the cost burden onto homebuyers, the experts said.
"It will increase home prices by a noticeable amount," Ken Johnson, a real estate economist at the University of Mississippi, told ABC News.
Home prices surged about 24% over a nearly two-year period beginning at the outset of the pandemic in December 2019, the fastest rate on record, researchers at the National Bureau of Economic Research found.
Price hikes have slowed since then, however. Home prices rose about 4.5% in 2024, Goldman Sachs said.
"Prices have stopped rising at these incredible rates," Johnson said, but he warned they could pick up again after tariffs. "People will feel it," he added.
Tariffs may also impact another source of housing cost woes: high mortgage rates.
The average rate for a 30-year fixed mortgage stands at 6.95%, Freddie Mac data last week showed. That figure has ticked up over recent months, despite a series of interest rate cuts at the Federal Reserve.
Last week, Fed Chair Jerome Powell left interest rates unchanged, saying further rate cuts may slow over the course of 2025.
Duties on Mexico and Canada could further delay interest rate cuts or even trigger rate hikes, since the Fed may move to fight a potential burst of inflation, some experts said.
"If costs are going up, the Fed will do what it's mandated to do," Marc Norman, associate dean at the New York University School of Professional Studies and Schack Institute of Real Estate, told ABC News.
The Fed's benchmark interest rate helps set the level of mortgage rates, which closely track the yield on a 10-year Treasury bond, or the amount paid to a bondholder annually.
If the Fed raises rates in order to control tariff-induced inflation, mortgages could very well rise, some experts said.
"The worry is the Fed might respond to potential inflation growth by either not lowering their rates or by raising their rates, which could lead to higher mortgage rates," Johnson said.
But the tariffs may not worsen affordability challenges much, Norman said, in part because they would arrive at a moment when challenges already abound, including insufficient housing supply and high construction costs.
"We're in a crisis already," Norman said.
