By Jacob Passy
J PAT CARTER/AFP/Getty Images
Millions of Americans could be looking to sell their homes in the next year. But will the ongoing trade war between the United States and China get in their way?
As many as 12.1 million homeowners plan to sell their primary residence within 18 months, according to a new survey of 1,400 homeowners from personal-finance website NerdWallet .
Some 44% of those who said that they plan to sell in the next 18 months said recent shifts in the housing market have made them consider selling sooner than they originally planned.
These buyers are concerned that the shift away from a seller’s market could force them to make price concessions and lose some of the gain they would otherwise receive thanks to the break-neck pace of home price appreciation in recent years.
And a prolonged trade war with China is unlikely to help. “Consumer confidence appears to be weaker than recognized, particularly with respect to large ticket purchases like housing or remodeling,” said Rob Dietz, chief economist at the National Association of Home Builders.
“Clearly, a trade war increases this uncertainty,” he said. “We estimate that the 25% rate on the existing set of tariffs represent a $2.5 billion annual tax increase for the housing sector in terms of materials used for construction. A trade war will also hurt sectors of the economy, like agriculture, and increase overall consumer wariness.”
“The wind came out of the sails of the housing market at the end of 2018 as interest rates increased to 5% for mortgages,” he said.
‘The 25% rate on the existing set of tariffs represent a $2.5 billion annual tax increase for the housing sector in terms of materials used for construction.’
—Rob Dietz, chief economist at the National Association of Home Builders
Consumer confidence and the jobs market are strong (for now)
Others are more optimistic. Consumers generally have it good right now — and their confidence in the economy reflects that.
Low interest rates and the continually strong labor market are boons to American consumers and therefore positive headwinds for the country’s housing market, said Mike Fratantoni, chief economist for the Mortgage Bankers Association.
The most recent measures of consumer sentiment remained high in April , with just 8% of consumers expecting their finances to worsen in the coming year. And the trade spat between the U.S. and China last year didn’t hurt consumer confidence that much — in fact consumer sentiment has not remained favorable for this length of time since the Clinton administration .
But that’s not to say that things couldn’t change. If China’s retaliatory tariffs on U.S. goods lead to job losses in certain industries, housing markets in those regions could suffer, Dietz said.
For instance, China’s tariffs on American agricultural goods could create major problems for farmers across the Midwest if they can’t find other buyers to pick up the slack. Farmers could lose their jobs and in turn find it harder to make mortgage payments. That could then cause more homeowners in those areas to go into default and risk losing their homes.
Tariffs could increase home construction and remodeling costs
A more direct effect of the trade war between the U.S. and China would come vis-à-vis the cost to build new homes or remodel existing ones, industry analysts said. “A trade war directly affects the housing market mostly through the supply chain — the price of sticks and bricks,” Skylar Olsen, director of economic research at Zillow /zigman2/quotes/205077794/composite ZG -1.07% , said.
The U.S. imposed tariffs on materials that could ultimately impact the cost of consumer goods such as toys and electronics, but the Office of the U.S. Trade Representative also has levied duties on raw goods used in construction such as aluminum and steel.
Previous tariffs the Trump administration implemented on steel, aluminum and lumber imports did directly increase the cost of a newly-constructed, median-priced home.
Moreover, appliances are one of the most hard-hit categories of products by the most recent tariffs hikes. In that case, it will become much more difficult for homeowners to upgrade their home’s kitchen or laundry room — features that can boost a property’s selling price.
‘If prices rise on clothes and shoes, these renters could find themselves even more financially imperiled.’
—Holden Lewis, housing expert at personal-finance site NerdWallet
Rising inflation could keep some renters out of the home-buying market
Many renters — especially those in high-cost housing markets — devote well-beyond the recommended third of their income to rent. As a result, many of these Americans are forced to live paycheck to paycheck once all of their other necessary expenses are tallied.
“A trade war that results in higher costs of household goods could mean that the going might get tough for low-income renters,” said Holden Lewis, a housing expert at NerdWallet. “If prices rise on clothes and shoes, these renters could find themselves even more financially imperiled.”
The trade war could keep mortgage rates low
Ultimately, trade relations between the U.S. and China may not be the biggest factor affecting the housing market in the months to come.
Housing demand has already been softening, as high home prices in some parts of the country began to force too many would-be buyers out of the market.
More mundane considerations such as getting married, having kids or retiring are also key drivers for people to buy or sell their home.
Home buyers could actually stand to benefit from the trade war in one key way: It should keep mortgage rates low. An extended trade war doesn’t just boost inflation, it also increases economic uncertainty.
“The uncertainty over trade policy has pushed investors to safe-haven assets, driving mortgage rates lower,” said Danielle Hale, chief economist at Realtor.com. (Realtor.com is operated by News Corp /zigman2/quotes/201755982/composite NWSA +1.96% subsidiary Move Inc., and MarketWatch is a unit of Dow Jones, which is also a subsidiary of News Corp.)
“The economic uncertainty and slower growth generated from the trade war is likely to fully offset any inflation induced higher rates,” Hale said.
HOMZ /zigman2/quotes/203278229/composite HOMZ +1.69% , an ETF that tracks the U.S. housing industry, was up 0.26% mid-morning on Tuesday. Comparatively, the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +1.44% was up 0.8%, and the S&P 500 /zigman2/quotes/210599714/realtime SPX +1.05% was up 0.9% in mid-morning trading, recovering from Monday’s declines.