Yet the spring home shopping season finds itself in a tough spot, as new economic developments introduce considerable uncertainty for would-be buyers. The announcement by former President Donald Trump that he intends to impose “reciprocal” tariffs on all imports into the United States. This policy change drove up stock market volatility and devastated the real estate market, pushing home sales down over 40%. This is further complicated by a fear of recession and the surge in mortgage rates, which are especially impacting first-time homebuyers.
Sales of previously owned homes fell 5.9% from February to March. This drop points to a deceleration in what is typically the most frenetic market period for home buying and selling. Fast forward to the start of 2024, and national home sales have all but stopped on a dime. That’s because during the four-week period from March 17 to April 13, more than 14% of home purchase agreements were terminated. Today’s pronounced hesitancy in our spring housing market is being shaped under the influence of these perplexing Trump trade policies.
Economic Impacts of Tariffs
The White House’s first, surprising, tariff announcement shook up financial markets like no other recent news event, leading to historic turbulence in both stock and bond markets. Although he later instituted a 90-day pause on many of the highest tariffs—excluding those on China—recession fears have persisted, making potential buyers wary. Economists are raising the alarm about inflationary returns for everyday products – from shoes to other consumer staples. These new tariffs would only add to the pressure on household budgets.
Mortgage rates have been subject to the pull of these economic changes. In response to Trump’s announcement, the closely watched 10-year Treasury yield jumped to 4.5%. This spike prompted the largest single-week jump in average rates for conventional 30-year fixed mortgages that we’ve experienced in nearly a year. This increase in borrowing cost has generated yet another obstacle for first-time homebuyers who are already competing with a difficult market.
“Mortgage rates are a huge factor, especially for first-time homebuyers who are really trying to thread the needle of affordability right now.” – Maddy Mixter
Hesitation Among First-Time Buyers
Given the tumultuous economic situation, first-time homebuyers are showing increased levels of timidity. With that, many are now increasingly seeking homes they can move into now, a testament to their desire for stability in an uncertain world. Maddy Mixter, a real estate expert, observed that “first-time homebuyers have been a little more skittish,” attributing their hesitation to the current volatility in both the housing and financial markets.
The fear to jump because of how the stock market is doing is further fueling this wait-and-see approach. Mixter noted, “I think there is anxiety around if the markets will rebound and that makes younger buyers even more hesitant to cash out stocks right now.” This feeling has caused a majority of potential homebuyers to reconsider their fiscal plans. Because of that, they’re changing their timelines for big purchases, such as buying a home.
“I think, for the most part, people are kind of taking a step back or being really cautious in their moves in the real estate market.” – Maddy Mixter
Deal Cancellations and Market Trends
The current turmoil has caused a wave of deal cancellations from coast to coast. As buyers face the realities of higher interest rates and a strained economy, they are more frequently backing out of contracts. Some real estate professionals note that the main discussions about tariffs stem from buyers interested in properties that require extensive renovations.
Matthew Bizzarro remarked, “The main talk I’ve heard about tariffs is from folks who are buying places that need to be gut-renovated.” On the positive side, this trend indicates that a significant number of buyers remain undeterred and continue to behave aggressively within the market. They have equally serious concerns about costs and investment viability.
Strategic financial planning could help provide calm and prevent danger, he reminds us. He recommends would-be purchasers with short-term objectives to proceed with caution. If you know you’ll need a home in the next few years, don’t have all your required cash—such as down payments and moving costs—fully exposed to the stock market.
“If you have a short-term goal, like buying a home in the next handful of years, the money that you need to facilitate that transaction… shouldn’t be fully invested in the stock market.” – Douglas Boneparth