Trade war on housing

With all the talk surrounding international trade wars and tariffs in the news – a U.S.- China joint agreement to “cease fire” being the latest headline, yet there are threats still lingering with Canada and other frequent trade partners – how will they affect our domestic housing market? No one has a crystal ball, but we know consumer sentiments often drive behaviors, so we asked American homebuyers and owners what they think of the effect of trade wars.   

The latest Q4 ValueInsured Modern Homebuyer Survey found 56% of Americans believe trade wars could affect the housing market, while 44% believe they won’t:

  • 29% believe trade wars will lead to rise in construction costs, and therefore drive up home prices

  • 27% believe trade wars will hurt the economy, and therefore drive down buying demand and home prices

  • 44% – the largest cohort – believe trade wars will have little to no effect on housing market conditions, home-buying demand or home prices

Taking a closer look, homeowners – who may have more experience and insight into how different economic factors could affect the housing market – tend to believe intensifying trade wars could drive up home prices. This is particularly true among younger and urban homeowners. Among urban homeowners, 42% believe trade wars could drive up home prices, 23% believe trade wars could hurt buying demand, and drive down prices, whereas 35% believe trade wars will have little to no effect. In comparison, 52% of all suburban homeowners believe trade wars will have little to no effect on the housing market.

Among millennial homeowners, 44% believe trade wars could drive up construction costs and home prices, while 28% believe prices could be driven down, and 28% believe effects will be minimum. In contrast, homeowners over age 65 are more than twice as likely (64%) to believe home-buying demand and home prices are not affected by trade wars.

These more mature homeowners could be wrong. Since intensifying trade wars put a nearly 21% tariff on lumber imported from Canada – a country that provides one third of construction lumber in the U.S. – lumber prices in our country has rise 15%. It is estimated that this Canadian lumber tariff made official in November 2017 is responsible for $9,000 increase in median home price for newly constructed homes.

Another effect trade wars could have on our economy and the housing market is its impact on interest rates. Typically, trade wars drive up prices for consumer goods, weakening consumer buying power, and forces the Fed to raise interest rates. This in turn affects mortgage-borrowing power, and could potentially tamper home-buying demand. Intensifying trade wars also have a history of slowing foreign investment in our domestic real estate market; when foreign buyer retreat, home prices tend to soften.  

It remains to be seen how newly levied tariffs and threats of trade wars could affect our U.S. housing market long-term. For now, this is yet another example that while many Americans save long and hard to buy a home of their dream, there are external factors impacting their home value that could be unpredictable and are far beyond everyday homebuyers’ control.