Donald Trump's tariffs offer mortgage 'silver lining'
Donald Trump's sweeping tariffs have thrown the global stock market into chaos and are likely to hurt the U.S. economy by increasing inflation, economists warned—but they may also finally bring mortgage rates down.
Following the president's announcement of new tariffs on what he called "Liberation Day" last week, mortgage rates fell to their lowest level in six months, offering some respite to aspiring homebuyers struggling with shrinking affordability on the U.S. market.
Why It Matters
Mortgage rates shot up in 2022 as a result of the Federal Reserve's aggressive rate-hiking campaign to combat the rise of inflation and have remained high despite the central bank's recent cuts to its interest rates.
Historically high mortgage rates have exacerbated the country's housing affordability crisis, contributing to eroding potential homebuyers' purchasing power.
What To Know
Trump has announced a 10 percent baseline tariff on imported goods, with higher rates for specific countries—including 20 percent on imports from the European Union and 35 percent on Chinese goods.
Several economists have warned that these tariffs could lead to higher prices for American consumers, slower growth and higher unemployment—as well as higher construction costs that could slow down homebuilding across the country.
A rise in inflation is likely to prevent the Federal Reserve from cutting interest rates significantly, a move that many have been counting on to improve affordability in the U.S. housing market.
But as of April 3, one day after the president's announcement, the 30-year fixed-rate mortgage was 6.64 percent, down 0.01 from a week earlier and 0.18 from a year earlier, according to the Federal Home Loan Mortgage Corporation, better known as Freddie Mac.
As of the same day, the 15-year fixed-rate mortgage was 5.82 percent, down 0.07 from a week earlier and 0.24 from a year earlier.
The recent decline in mortgage rates is giving Americans more purchasing power.
As rates fell from 6.82 percent on March 27 to 6.55 on April 4, a buyer on a $3,000 budget has gained about $9,000 in purchasing power. The same buyer can now afford a $458,750 home with a 6.55 percent mortgage rate, according to Redfin—the lowest daily average mortgage rate in six months.
Since mid-January, when mortgage rates hit 7.26 percent, a buyer on a $3,000 budget has gained a total of $25,000 in purchasing power.
Despite this obvious positive development for buyers, housing costs remain near record highs, keeping many on the sidelines of the market even as spring buying season heats up. In the four weeks ending March 30, the typical U.S. homebuyer's monthly payment hit a record high of $2,802, according to Redfin.
What People Are Saying
Redfin Economics Research Lead Chen Zhao said in a statement: "Even in times of great economic uncertainty, there are people who need to move. For those weary homebuyers, this drop in mortgage rates could be a silver lining of this week's historic tariffs announcement. However, a word of caution for the general public: This is a wait-and-see moment. Tariffs and the fallout we've already seen in the stock market are impacting the economy and could create more volatility in the housing market."
Melissa Cohn, regional vice president of William Raveis Mortgage, previously told Newsweek:"Mortgage rates are going down at the moment. However, when the higher costs of goods start to push up the rate of inflation, it is quite possible that rates will go back up. I expect to be on a mortgage rate roller coaster for the next few months."
Alex Beene, a financial literacy instructor for the University of Tennessee at Martin, previously told Newsweek: "Further inflation to both housing costs and other commonly purchased items could cause the Fed to reverse course on dropping interest rates and play a key role in increasing—not decreasing—mortgage expenses. As it stands right now, this is a worst-case-scenario for homebuyers."
What's Next
While mortgage rates have fallen as a result of Trump's tariffs announcement, Redfin's Zhao warned that this decline is likely to be temporary as "much uncertainty and volatility lies ahead."
"The future for mortgage rates depends on whether the inflationary or the recessionary effects of tariffs dominate, and how the Fed chooses to respond," Zhao wrote in an update released last week. "Some clues will emerge as we see how various countries choose to respond, and we hear from Fed Chair Powell later this morning."
Earlier this year, a majority of experts forecast mortgage rates to remain between 6 percent and 7 percent throughout 2025 and 2026.