U.S. Tariffs: Redfin’s Latest Analysis of Housing Market Impacts

President Trump’s newly announced tariffs will impact the housing market in a variety of ways.

We’ll be updating this page with new information as the situation evolves.

Update: May 29, 2025 at 8:50am PDT

Court of International Trade blocks Trump tariffs

The Court of International Trade has ruled that the White House cannot use the International Emergency Economic Powers Act to broadly implement tariffs. If the administration does not win an appeal within ten days, this removes the 10% global minimum tariff and country-specific reciprocal tariffs imposed on April 2 (“Liberation Day”), the 25% tariffs on non-USMC compliant imports from Mexico and Canada, and the 20% tariffs on China imposed because of fentanyl. It will not impact the sectoral tariffs—25% on aluminum, steel, and autos as well as potential new tariffs currently under investigation—as they relied on Section 232 authority.

Does this mean the trade war is over?

No, the White House still has two potential avenues to continue the trade war:

1. Appeal the ruling, which they have already done, hoping the Supreme Court will eventually side with them.
2. Pivot to other legal avenues to pursue the same or amended tariffs, such as Section 301, Section 232, or Section 122. They have used both Sections 232 and 301 to justify previous tariffs.

However, if the administration is looking for an off ramp to avert further economic damage from the trade war, a convenient opportunity has just presented itself. Still, it seems unlikely they will take it, as they find the tariff revenues appealing in light of the deficit-increasing budget reconciliation bill making its way through Congress.

What will happen to mortgage rates?

Mortgage rates are unlikely to move much in the near future because the administration has other options to implement tariffs. If most, or all, of the tariffs since Inauguration Day were called off, however, mortgage rates would likely fall. While lower recession risk and more money flowing from the bond market to equity markets will push rates up, removing the tariff-induced recession risk would allow the Fed to continue rate cuts as inflation settles toward 2%. That could ultimately bring mortgage rates down by as much as 25 to 50 basis points.

Update: April 10, 2025 at 8:00am PDT

Assessing the impact of the 90-day tariff pause

The so-called “tariff pause” has been overstated. Currently, the tariffs that remain in place are larger than what was originally announced on April 2 (“Liberation Day”). That’s because we have increased the tariffs on China so much that they overwhelm the 90-day pause on reciprocal tariffs for everyone else. China is our third largest trading partner and, therefore, more consequential than all of the countries we paused reciprocal tariffs on. Furthermore, other countries still face tariffs of 10%, a number that would have been viewed as shockingly high prior to April 2. Not to mention the previously implemented tariffs on Canada and Mexico on non-USMCA covered goods, automobiles and car parts, steel and aluminum, and the sector-specific tariffs to come (e.g. pharmaceuticals). As a result, the trade-weighted average tariff rate still exceeds 20% and is still the highest in about a century. Of course, the 90-day pause indicates that the 125% tariffs on China may gradually be walked back, but that is currently uncertain.

As of today, there are three key questions that remain unanswered, all of which could impact the housing market and broader economy in coming months:

• What will happen to the tariffs on China in the coming weeks?
• What will happen in negotiations between the U.S. and trading partners in the next 90 days? 
• What product-specific tariffs are coming? President Trump mentioned potential tariffs on pharmaceuticals on Wednesday: How big will they be?

Update: April 9, 2025 at 8:45am PDT

Are we heading into a recession?

We are likely headed for a severe global recession if the tariffs that went into effect today are not walked back substantially in the coming weeks.

If the tariffs  are completely reversed, then the odds of a recession drop closer to 20-25%.

If we end up somewhere in the middle—where some countries are able to negotiate lower tariff rates (e.g. the global 10% minimum) and the average tariff rate ends up around 10%—then the probability of a recession is probably in the 40% range.

Betting markets have the odds of a recession at 64%—reflecting the likelihood of each scenario above, coupled with the recession odds in each scenario.

What’s going on with mortgage rates and the 10-year treasury yield?

After falling in the days following President Trump’s tariff announcement on April 2, mortgage rates have been rising consistently, along with the 10-year treasury yield. Let’s unpack what is happening.

• Spreads are increasing: Mortgage rates move with 10-year treasury yields, but the difference (or “spread”) between the two can also change. When bond market volatility increases or prepayment risk increases (i.e. if it’s more likely mortgage holders will refinance in the future), the spread increases and mortgage rates move higher relative to 10-year treasury yields. Spreads have increased by about 20 basis points (bps) from 240 bps to 260 bps since before the April 2 tariff announcements—and could increase further. Spreads were routinely in the 300 bps range in parts of 2022 and 2023 as the Fed was rapidly hiking rates.
• 10-year treasury yields are rising: The US treasury market appears to be falling, causing bond prices to fall and yields to rise. Ten-year yields have increased from a low of 3.9% late last week to as high as 4.5% early this morning. Mortgage rates could approach—or even cross—7% today, depending on where 10-year treasuries settle. There are a number of potential factors driving this move, but ultimately no one knows for sure why this is happening:
  • Foreign buyers abandoning US Treasury bonds: The largest holders of US Treasuries are China and Japan, both of which are facing steep tariffs. That is especially the case with China, as it finds itself the primary target of this trade war. Any potential sell off among foreign buyers could be driven by a need for retribution or a loss of faith in the US as a safe haven.
  • Hedge funds repositioning: Large sell offs are sometimes driven by activity from just a few hedge funds. They could be fleeing the so-called basis trade, a popular trade in recent years that exploits a small mispricing between the cash and futures market for treasuries and that could go awry in the current volatility. They could also be facing margin calls on their equity holdings so they need to raise cash. Or they could simply be rebalancing their portfolios.
  • More fundamental reasons: Investors could be positioning themselves based on their views about recession odds, inflation expectations, and the future path of rates.

What’s going to happen to mortgage rates over the next week, month or year? It’s impossible to say at the moment because the size of the tariffs taking effect today have upended the global economy and financial markets to such an extent that it’s hard to know where we will land. It would not be surprising to see some parts of financial markets start to break, especially if any large institutional investors blow up. The only certainty is that we should expect outsized volatility for the foreseeable future.

Update: April 7, 2025 at 3:40pm PDT

What does economic uncertainty mean for homebuyers and sellers?

Tariffs could lead to homebuyers and sellers potentially facing an extended period of economic uncertainty. There may be some mortgage rate relief, but that is far from certain. As explained in our previous update, mortgage rates could go down, or up, or sideways depending on how the Fed chooses to respond to inflationary or recessionary pressures caused by the new tariffs.

Beyond mortgage rates, the more extensive and long-lasting these tariffs are, the more the stock market is likely to fall, as businesses are hit by rising input costs and consumers pull back in the face of higher prices. Nearly 60% of US households hold stocks, including nearly 70% of homeowners. Falling stock prices will hit the wealth of these households, reducing demand in the housing market. In addition to the direct effect, there is an indirect effect whereby households are less likely to make big economic decisions like buying or selling a home, because they feel more uncertain about their job security and economic future.

In an instance like today, where markets are simply volatile, but not necessarily declining, that pure uncertainty also has a dampening effect on the housing market. First, bond market volatility directly increases the difference between 30-year mortgage rates and 10-year treasury yields, pushing mortgage rates up. Second, consumers tend to shy away from big decisions, like home purchases, during periods of volatility for many reasons, not least of which is because it’s hard to shop for a home if you don’t know what your budget is.

If the tariffs are not rolled back, the economic damage will eventually move from the stock market to the real economy and increase unemployment. The actual unemployment rate doesn’t tend to rise until after the economy enters a recession. But the labor market jitters will be felt much earlier and will be enough to hold many back from looking for a new home.

Whether the economic downturn or any mortgage rate relief matters more for housing depends on the relative size of each. Stagflation is the worst-case outcome, where the economy craters at the same time that mortgage rates remain high. In a purely recessionary outcome, some of the economic impact will be mitigated by lower mortgage rates, especially if homeowners are relatively insulated from the downturn.

Update: April 7, 2025 at 1:50pm PDT

Why are mortgage rates rising today?

Mortgage rates rose today, after declining last Thursday and Friday, because investors are increasingly worried that the Fed will not cut rates as the economy weakens. In other words, we may be in for stagflation—a period of simultaneous weak economic growth and high rates/inflation—rather than a recession.

All credible empirical economic studies show that increasing tariffs leads to inflation, slower economic growth and higher unemployment. The Fed’s mandate is to maximize employment and keep inflation steady at about 2% per year. If the full force of the tariffs announced on April 2 take effect, inflation is expected to increase to 4.5%, or higher. The unemployment rate could also rise to the 5% range. That puts the Fed in a difficult position. How they respond depends on whether they think the bout of inflation is persistent, in which case they should respond with higher rates, or transient, in which case they shouldn’t. To make that decision, they will assess whether there is an escalating trade war and whether consumers and markets start to expect persistent inflation.

Last Thursday and Friday, bond market investors started to price in additional rate cuts this year on the expectation of an impending recession. Chair Powell spoke on Friday morning, however, and made it clear that the Fed is in no hurry to start cutting. Furthermore, he said that the Fed is not convinced this bout of inflation will be transient. That made markets realize that the risk of stagflation is higher than previously thought. As a result, the yield on 10 year treasuries, and therefore mortgage rates, are up sharply today.

Update: April 7, 2025 at 11:40am PDT

How will the tariffs affect construction costs and home prices?

In general, tariffs increase the cost of constructing a new home, pushing home prices up and depressing housing supply at a time when the housing market is already unaffordable for many. This is especially true in the context of the government’s stricter immigration policies that limit the supply of construction labor—traditionally heavily dependent on undocumented immigrants—and increase construction wages. The tariffs that President Trump announced on April 2 exclude USMCA-covered goods from Canada and Mexico, meaning most of the imports used in construction are not affected. So the impact on the cost of construction should have been limited. But the situation is fluid with the White House announcing 34% tariffs on Canadian lumber today.

According to the National Association of Home Builders (NAHB), approximately 7% of all goods used in new residential construction are imported. The two main materials are softwood lumber from Canada and gypsum from Mexico, which is used for drywall. In addition, home appliances are often imported from China. The NAHB estimates that a new single family home includes $174,155 worth of building materials, including $12,713 of imported materials. Their March 2025 survey shows that builders estimate that recent tariffs announcements will increase the cost of building a home by $9,200. Whether this is all passed on to the consumer depends on whether the housing market allows them to sell homes for higher prices. If they can’t, they will need to absorb it in their margins, which would result in less building.

While the US may eventually source more softwood lumber domestically, US sawmills currently do not have the capacity to meet demand. Any increase in capacity will take time. However, the uncertain business environment makes it difficult for business executives to make long term investment and hiring decisions.

Update: April 3, 2025

Size of Tariffs 

Following President Trump’s announcement on Wednesday, Goldman Sachs calculated that the sum of the newly announced tariffs would increase the 2024 average tariff rate of 2.5% by 18.7 percentage points, yielding a final average tariff rate of 21.2%. This would be the highest tariff rate for the US in about a century. Other analysts have estimated that the tariff rate may range from 22%-29%.

The situation remains very fluid. Negotiations and product-specific tariffs will likely change the picture. Interviews with Treasury Secretary Scott Bessent and President Trump’s own remarks suggest that the announced tariffs are a maximum level from which countries can negotiate a lower rate in exchange for concessions (though the 10% global minimum seems less likely to change).

One nuance is that President Trump’s economics team appears to have calculated country-specific tariffs based on our trade deficit with a nation divided by our imports from that country—rather than based on actual barriers to trade. This methodology means that a country dropping its tariffs does not mechanically change the reciprocal “discounted” tariff we are charging them. Presumably, the President is looking for concessions of a different nature or will simply change how the reciprocal rate is determined.

Macroeconomic Impact

• Inflation: The simple rule of thumb that economists use based on past evidence is that a one percentage point increase in the tariff rate increases the rate of inflation by 0.1 percentage points. So we would expect a 18.7 percentage point increase in the average tariff rate to increase core inflation from 2.8% to 4.7%. For context, core inflation peaked at 5.6% in 2022.
• Growth and employment: These tariffs are significantly larger than what was expected by most wall street economists. If they are not meaningfully reduced in the negotiation process, GDP growth is likely to come in below 1%, perhaps skirting negative territory. The unemployment rate could rise up to 5% from 4.1% currently. Polymarket currently has 2025 recession odds at 47%, which I think is reasonable.
• Timing of impact: Analysts are expecting the impact of the new tariffs to hit in Q2 and Q3 though there is disagreement about whether the inflationary or growth impacts would arrive first. The timing could impact the Fed’s response, as we may experience temporary illusions where it seems like the impacts are smaller than they actually are.

Fed Response and Rates 

Ten year yields are falling today as investors seek safety in bond markets and price in expectations for more Fed cuts this year. Daily mortgage rates fell 12 basis points to 6.63%. What happens from here depends on the Fed’s actual response. The dominant narrative currently is to expect lower rates because the economy will fall into a recession. That may well prove correct, but I think it is far from guaranteed. The risk of stagflation—where rates remain high despite sluggish growth—is real.

Fundamentally, the Fed needs to forecast whether the potentially one-off inflationary impact of the tariffs matters more than the recessionary (and therefore disinflationary) impact. No one knows the answer to that question. It depends on how much currency markets adjust to potentially offset the tariffs, the decisions of every business along the supply chain, and how consumers react. It is possible that the Fed will cut rates 3-4 times this year as markets currently expect, but that would require them to prioritize the employment side of their mandate above the inflation side, which would only happen if they believe the inflation to be transitory. Therefore, in order for the expected Fed cuts to materialize, three things would need to be true:

1. 1. No further escalation in the trade war: Any retaliation followed by escalation from the US would make the bout of inflation less transitory.
   2. Consumers do not start to expect high inflation (“unanchoring of inflation expectations” in Fed-speak): When people believe there will be high inflation, they will act in a way that brings about inflation. The key will be to watch inflation expectation measures in the University of Michigan and Conference Board surveys of consumer sentiment, which are already showing signs that consumers are expecting higher inflation in the future.
   3. Hard evidence of a real economic slowdown: So far, the evidence of economic weakness has mostly been in consumer and business sentiment surveys. The Fed would need to see rising unemployment rates and sluggish or even negative job creation.

Original Post: April 2, 2025

New Tariffs

• There will be a new baseline global tariff rate of 10% for goods imported to the US. Certain countries will be subject to higher tariffs, including China (34%), EU (20%), Taiwan (32%), and Japan (24%). It appears that Canada and Mexico will continue to be subject to 25% tariffs except for goods that are covered by the USMCA, which covers the majority of imports from these countries.
• At the beginning of President Trump’s second term, the average tariff rate was about 2.5%. Before today’s announcement, it had risen to about 8% after the President imposed new tariffs on China, steel and aluminum, and some goods from Mexico and China.
• Expectations coming into today’s announcement were that the average tariff rate would rise to about 17% by the end of the year. Given the carve outs for Canada and Mexico, and lingering ambiguity around which tariffs are additive on top of existing tariffs, it’s not immediately clear where the average tariff rate will land after these announcements. However, it’s likely that the size will exceed what was expected.
• Notably, these tariffs do not take effect until April 9, providing some time for negotiations to take place and for some of the announced tariffs to be walked back.

Macroeconomic Impact: Higher Inflation, Slower Economic Growth, Uncertainty Around Fed Rate Cuts

• Forecasters are expecting core inflation to rise to ~3.5-4.0% from the current 2.8% by year end. And for 2025 GDP growth to end the year at around 1%, down from 2.4% in 2024. The unemployment rate is expected to increase to 4.5% from 4.1% currently.
• The odds of a recession in the next 12 months have increased to about 40% from about 15% at the start of the year.
• These are all just from the tariffs. There is also the backdrop of cuts to the federal government and stricter immigration policy, which both drag down economic growth and boost inflation as well.
• Whether the Fed cuts rates as both inflation and unemployment increase depends on whether the Fed views the bump in inflation as transitory. Currently the Fed is expected to cut rates 2-3 times in 2025, starting in June. 
  • • Tariff-driven inflation may well be short-lived, as the increase in prices happens one time. 
    • But any escalation of the trade war and the potential un-anchoring of inflation expectations among consumers (i.e., when people expect inflation, they act in ways that produce more inflation) could cause prolonged inflation. Chair Powell’s most recent remarks suggest he may be willing to “see through” an impending bout of inflation and make the expected cuts, but history tells us that the Fed’s words are sometimes not the best predictor of the Fed’s actions.

Housing Market Impact: Volatile Mortgage Rates, Rising Cost of New Homes

• Rates may be volatile over the next few days as countries respond to these tariffs and negotiate with President Trump. There are a few forces pushing mortgage rates in different directions:
  • • On the one hand, slower economic growth, higher recession odds, and a sell-off in the stock market would push bonds to rally, causing mortgage rates to fall. 
    • On the other hand, higher inflation for longer, and the possibility of the Fed keeping the Fed funds rate higher would push mortgage rates higher. 
    • Whether rates fall or rise depends on whether this bout of inflation is temporary.
• The cost of building new housing will also increase because construction relies heavily on imported materials and immigrant labor. Roughly a third of the lumber, and most of the drywall and home appliances, used in new residential construction are imported. All of those materials will now cost more, even with the current carve outs for Canada and Mexico. 
  • • How much more depends on a few factors: where the tariff rates finally land and their longevity, how much exporters choose to decrease prices, any currency market adjustments in response to the new tariff policy, and how much importers pass the increased costs to their customers.
    • For homebuyers, how much more a new home will cost depends on how much of the increased expenses builders pass on. But it’s very likely prices of new homes will increase meaningfully.