Economic fears loom under Trump, but homebuyers may see silver lining

Politico unveils in a latest article that Americans are increasingly concerned that President Donald Trump's policies could push the economy toward a slowdown. However, a potential downturn may bring some positive news for homebuyers.

In recent weeks, rates for 30-year fixed-rate mortgages have dropped below 7 per cent, reflecting a decline in economic confidence that has rattled Wall Street and disrupted investment strategies. Mortgage applications jumped more than 11 per cent in the first week of March, a 31 per cent increase compared to the same period last year, just as the spring housing season begins. Meanwhile, refinancings have surged from historically low levels as homeowners capitalize on the lower borrowing costs.

The government has recently reported a notable 11.4 per cent increase in the construction of new single-family homes last month.

“No one should underestimate the pent-up demand in housing across the economy,” said Joe Brusuelas, chief economist at RSM US. “Once unleashed,” he added, it would “bolster the overall economy.”

A recovery in the housing market would be a welcome boost for Trump’s administration as consumer confidence falters early in his presidency. Rising home prices and mortgage interest rates have paralyzed the market in recent years, driving up inflation and exacerbating the affordability crisis, which has soured voters’ views on the Biden economy.

However, there are growing concerns that Trump’s tariffs could lead to higher inflation again as businesses pass on the increased import costs. Stock prices have fallen, and Wall Street analysts have adjusted their economic outlooks to account for the unpredictable nature of Trump’s trade policies. CEOs are also warning of delays in new investments, and consumer spending shows signs of weakening.

Lawrence Yun, chief economist at the National Association of Realtors (NAR), noted that the economic challenges—tariff wars, an uncertain regulatory environment, and mixed inflation data—are benefiting the housing market by lowering interest rates.

“Even in an economic recession, generally home sales can rise if the mortgage rate declines,” Yun said. With the Federal Reserve expected to lower borrowing costs later this year, mortgage rates are likely to continue trending downward.

Yun also anticipates “meaningful growth in home sales” this year due to both lower mortgage rates and increasing inventory. Unsold existing homes rose 3.5 per cent in January, according to NAR, with February sales data set to be released soon.

Rates for most home loans are tied to yields on 10-year Treasury notes, which have fallen sharply since February as investors sought safety from stock market volatility. This decline in Treasury yields has contributed to the reduction in mortgage rates.

While lower mortgage rates could attract more homebuyers, economists warn that it may not be enough to stave off a downturn if consumer spending weakens and sentiment continues to sour.

Builders are facing challenges from tariffs that could raise construction costs and further strain the already limited housing supply. Trump’s immigration policies could also reduce the availability of workers in the construction industry, pushing labour costs higher. These cost pressures caused the National Association of Home Builders and Wells Fargo’s confidence index to hit a seven-month low in March.

While new construction has surged, February data revealed a 0.2 per cent decline in new project permits, indicating the ongoing housing supply shortage that has made homeownership unaffordable for many prospective buyers.

“Buyers get discouraged when there’s not enough inventory, and they get discouraged relatively quickly,” said Mike Skordeles, head of US economics at Truist. “The lack of available existing inventory is still holding things down.”

The possibility of an economic slowdown could make borrowers and lenders more cautious. The Federal Reserve Bank of New York’s latest survey found that the share of discouraged borrowers reached its highest level since October 2013.

Skylar Olsen, Zillow’s chief economist, said that inflation and labor market conditions could lead the Federal Reserve to keep interest rates high for a longer period. As food prices rise, Olsen said, “the affordability pinch is not gone.”

Mike Fratantoni, chief economist at the Mortgage Bankers Association, expects the current dip in mortgage rates to be “temporary,” forecasting just one more rate cut in the third quarter of the year.

Fratantoni also noted that “the downside risks relative to our forecast have increased” due to the weakening job market.

While most economists predict economic growth this year, the recovery in the housing market could quickly be derailed if a recession hits. Rob Dietz, chief economist at the National Association of Home Builders, warned, “There’s a lot of uncertainty right now in the market...so the volatility in the market is also going to be a challenge.”

By Naila Huseynova