The Impact of Tariffs on Mortgage Rates and the Housing Market

On Wednesday, former President Trump announced sweeping tariffs targeting multiple nations, including a hefty 25% duty on all foreign automobile manufacturers. This decision has sparked concerns among investors, businesses, and everyday consumers, fueling fears of an impending global trade war.

Economic Uncertainty and Mortgage Rates

While the ripple effects of these tariffs remain uncertain, one pressing question is how they will influence supply chains, consumer prices, and interest rates. Given the many economic unknowns—ranging from trade policies and stock market fluctuations to federal employment cuts—it’s surprising that mortgage rates haven’t been more volatile.

Over the past few weeks, mortgage rates have remained within a narrow band, with the average 30-year fixed-rate mortgage sitting at 6.75% throughout March, according to data from Bankrate.

“The key word right now is uncertainty,” said Colin Robertson, founder of mortgage news site The Truth About Mortgage. “Nobody can predict what’s coming next with tariffs or government policies, leaving mortgage rates in a temporary holding pattern.”

Looking ahead to 2025, analysts anticipate mortgage rates could edge closer to 6%. However, Robertson warns that any significant rate drop may indicate economic deterioration. If American families grow increasingly anxious about job stability and the rising cost of living, they may be less inclined to take on mortgage debt.

The Housing Market and Tariffs: What to Expect

While tariffs are unlikely to affect the pricing of existing homes, they could significantly raise the cost of new home construction by driving up the price of lumber and essential building materials. This could slow down new home development.

“Builders may struggle to pass these added costs onto buyers due to limited pricing power,” noted housing analyst Logan Mohtashami. “As a result, the overall impact of tariffs on home prices may be minimal.”

However, the broader concern is how escalating trade tensions could shape mortgage rates. Economists fear that rising prices and retaliatory tariffs from other countries could disrupt the Federal Reserve’s strategy to lower interest rates. If inflation remains high, mortgage rates—closely tied to economic growth and fiscal policy—could climb further.

Higher rates would not only make homeownership less affordable for buyers but could also deter homeowners from selling, exacerbating the already constrained housing inventory. Mohtashami emphasized that limited existing housing supply and mortgage rates remain the two most significant factors shaping the housing market today.

Spring Homebuying Season: A Glimmer of Hope?

In recent years, elevated mortgage rates have sidelined many prospective buyers. Higher interest rates have also contributed to a tight resale housing market, as existing homeowners hold onto their lower sub-5% mortgage rates from previous years.

If lenders ease rates ahead of the spring buying season, homebuying activity could see a boost. Additionally, if the economy slows, the Federal Reserve may opt to lower interest rates in the summer, making borrowing more affordable overall.

Despite market stagnation, there has been a modest uptick in homebuyer activity. “For the first time in years, we’re observing positive trends in purchase applications,” Mohtashami noted.

As pent-up demand continues to build, many experts anticipate a surge in home purchases. “Some potential buyers have either adjusted to or accepted current mortgage rate levels,” added Keith Gumbinger, vice president at HSH.com.

While uncertainty looms over the housing market, shifting economic conditions and policy decisions in the coming months will play a crucial role in determining mortgage rate trends and homebuying activity.