How could tariffs affect mortgage rates?

Quick insights

When government officials begin discussing a new tariff policy, homebuyers and owners may wonder how these changes could affect mortgage rates or the broader housing market. There is no single, short answer to this question; the overall effect will vary depending on the circumstances and success of the tariffs applied. As a tax on imported goods, the range of impacts on citizens and companies can be complex.

In this article, we’ll explain the potential impacts of tariffs on the housing market. Read on to discover possible outcomes, including a close look at the chain of events which may lead to adjustments in mortgage rates.

The impact on domestic businesses

As a government-imposed tax on imported goods, tariffs are thought to have certain benefits for domestic manufacturing. Tariffs on imported goods can make them more expensive, discouraging the purchase of foreign products. This may give domestic companies a competitive advantage and better economic conditions for growth, including the jobs that can be offered. In periods of high employment rates and economic stability, buying a home can be more attractive.

On the other hand, businesses which rely on imported products or parts may struggle because of tariffs. Businesses with strong ties to international supply chains are likely to see increases in their bottom line. In extreme cases, these increases may make certain businesses unsustainable and contribute to job loss. Others may increase their own prices to maintain solvency, which can contribute to general inflation.

Generating revenue for the state

Tariffs can be useful in generating additional revenue for a country’s government. This revenue may be used to further stimulate the domestic economy or fund other projects at the government’s discretion. When these projects include infrastructure improvements, there may be a positive effect on property values and general real estate interest in the surrounding area.

What will tariffs do to interest rates?

In the U.S., the Fed has a dual mandate from congress to stabilize prices and promote employment. One “lever” the Fed can pull toward these goals is to adjust the federal funds rate, which is the interest rate applied to banks for overnight lending activities. If a tariff policy is successful, and the economy shows signs of health, the Fed may choose to maintain this rate. However, if tariffs begin to produce high amounts of job loss and/or inflation, the Fed may step in to stabilize the economy with a rate change.

Rate increases and the housing market

When the Fed raises the federal funds rate, higher costs for banks may be passed down to consumers. The intended effect of a rate increase is generally to slow down, or steady, unstable economic activity, including easing high inflation. If inflation is a primary concern of the Fed, the federal funds rate may be increased, elevating interest rates for homebuyers and refinancers.

While rising interest rates on mortgages may seem like a big downside for buyers, higher rates could ultimately reduce overall demand to buy a home. Less demand to buy, or fewer shoppers in the market, can result in a “buyer’s market.” Those looking to sell a home may need to lower their listing prices in order to attract offers.

Rate decreases and the housing market

Lowering the federal funds rate decreases costs for banks, which can in turn lower costs for consumers. With lower interest rates on financial products, a slow economy may be stimulated into healthy activity, with job growth being a possible effect.

If job creation and economic stimulation is the higher concern, the Fed may choose to lower rates. In times when interest rates are lower, those interested in buying a home may be more inclined to move forward. The increased demand for homes can contribute to a “seller’s market,” with rising prices for homes and multiple urgent offers for sellers.

In conclusion

So, will tariffs affect the housing market? As you now know, the exact impact of a tariff policy can vary widely. Tariffs can be a powerful tool to correct trade imbalances, support domestic businesses and collect revenue for the state. However, negative consequences of a tariff policy can result in shades of job loss and economic upset. In the U.S., tracking news from the Fed is one way to gain insight into possible shifts in the housing market.

At Chase, we update our current mortgage rates Monday through Friday. For one-on-one assistance, consider connecting with a Home Lending Advisor who can discuss your homebuying options with you.