President Donald Trump on Wednesday announced a 10% baseline tariff on all trading partners — and tariffs of up to 49% on a handful of other countries. These tariffs could have a downstream impact on homebuyers in the form of fluctuating mortgage rates and home prices.
Prior to the tariff announcement, mortgage rates had been expected to decline modestly in 2025, although the path forward depends on how tariffs shake out in the larger economy. Sustained inflation from tariffs could keep mortgage rates elevated, while a global trade war could hinder U.S. economic growth and drive interest rates lower. Here’s what you should know if you’re planning on buying a home this year.
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How Tariffs Could Raise Mortgage Rates
Tariffs are essentially a tax on imports, and the Trump administration plans on using tariffs to reduce the trade deficit and bring manufacturing back to the U.S. But switching to domestic manufacturing is not an option for some businesses, which often pass the burden of tariffs on to consumers in the form of higher prices on imported goods.
Both consumers and businesses now anticipate higher inflation — and inflation expectations can become a self-fulfilling prophecy. Inflation leads to higher bond yields (and thus mortgage rates) as investors demand higher returns in anticipation of weaker purchasing power in the future.
“The expected impact of the trade policy changes is to slow growth and raise prices, a move towards ‘stagflation,’ which is preventing the Fed from dropping rates as this point, as they also are trying to peer through a much more uncertain path for the economy,” Mortgage Bankers Association economists Mike Fratantoni and Joel Kan say in a March 2025 research outlook.
The Federal Reserve doesn’t set mortgage rates, and the Fed’s rate policy only has an indirect impact on long-term interest rates like those on 30-year mortgages. However, lenders often act in anticipation of future rate cuts, or lack thereof. Many economists are now expecting three Fed rate cuts in 2025, while the central bank anticipates two cuts this year in its most up-to-date projections materials.
It will take some time to see how tariffs impact prices in the economic data releases like the consumer price index. In 2025 so far, inflation has been somewhat raised, but the reports from the most recent available months (January and February) collected pricing data in the time before tariffs went into effect. In other words, the impact of Trump’s trade war on inflation has yet to be seen.
Trump’s first round of tariffs on China from 2018 — which were carried over into the Biden administration — were inflationary, accounting for 0.1 to 0.2 percentage points of core inflation, according to the Boston Fed. But unlike in 2018, this round of tariffs will impact imported goods from across the globe, not just those from China.
For now, investors will be keeping an eye on future CPI reports to gauge the inflationary impact of this round of tariffs.
How Tariffs Could Lower Mortgage Rates
Interest rates, including those on home loans, tend to be higher when the economy is strong. The opposite is also true: What’s bad news for the economy is often good news for mortgage rates.
While the stock market is not a full reflection of the economy, stocks tumbled upon opening the day after the tariffs were announced, possibly indicating economic uncertainty. The yield on 10-year Treasury bonds, which the 30-year mortgage rate tends to track, also dropped after the stock market opened on Thursday.
Many economists have downgraded their economic outlooks for 2025 as uncertainty around tariffs clouds the forecast. Wells Fargo economists say that the economy “appears to have lost some momentum recently.”Fannie Mae lowered its GDP growth outlook for 2025, from 2.2% to 1.7%.
What’s more, the chance of a recession in the next year has risen across several measures. J.P. Morgan Research raised the probability of a global recession in 2025 to 40%, up from 30%. Goldman Sachs also increased its recession risk, from 20% to 35% upon a more “aggressive assumption” for tariffs.
However, this isn’t necessarily news to Trump, who has said that his economic policy is likely to cause some short-term pain with the goal of long-term prosperity. If GDP growth slows meaningfully, one silver lining is that mortgage rates could fall more than currently expected.
Lower mortgage rates could lure some prospective homebuyers into the market, although consumers who are concerned about the future of the economy or their own job security may not feel financially confident enough to buy a home.
Tariffs Could Make Homes More Expensive to Build
Mortgage rates are just one part of the housing affordability equation. Rising home values are another factor pricing homebuyers out of the market, and tariffs are unlikely to provide relief on that front.
Homebuilders rely on imported lumber, steel and gypsum to construct new homes and improve existing housing inventory. It doesn’t end there: Tariffs could also raise the cost of appliances as well as plumbing and electrical materials that are used in home construction.
The National Association of Home Builders estimates that tariffs could increase the cost to build a typical home by $9,200. While a home is only worth what a buyer is willing to pay for it, this could result in higher home prices, especially in markets that already lack affordable housing.
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What Homebuyers Should Know on Liberation Day
If you’re considering buying a home in the near future, the impact of tariffs on home prices and mortgage rates is out of your control. It’s difficult to forecast economic trends, including future interest rate movements. It’s not advisable to try to time the market, so the conventional wisdom rings true: The best time to buy a home is when you’re financially ready to do so.
The best you can do right now is focus on things that are within your control, like:
— Shopping around for mortgage rates. Research from Freddie Mac shows that getting quotes from five or more mortgage lenders can save you about $3,000 over the life of the loan.
— Getting preapproved for a mortgage. A mortgage preapproval gives you an idea of how much home you can afford, which is key to finding a property within your price range.
— Finding a real estate agent you can trust. Buying a home is obviously a financial decision, but where you live is also a lifestyle choice. Give yourself room to enjoy the house shopping process.
Still, amid so much uncertainty around tariffs and the possibility of a recession, it’s completely understandable if you’re not comfortable buying a home in this economic moment. Personal finance is just that: highly personal.
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‘Liberation Day’ Tariffs Could Shackle Homebuyers originally appeared on usnews.com
