President Trump’s announcement this week of an aggressive wave of reciprocal tariffs on multiple countries and a 10% universal import tax triggered massive stock market chaos. The move also escalated fears of inflated consumer prices, a global trade war and a recession.
It’s unclear how these duties will upend supply chains and impact interest rates. With the vast number of unknowns in the economy — from Trump’s protectionist measures to federal jobs slashing — mortgage rates have already seen some dips this week. In March, mortgage rates fluctuated in a narrow range, with the average 30-year fixed rate beginning and ending the month at 6.75%, according to Bankrate data.
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Volatility is still in the cards as financial markets brace for more conclusive takeaways on inflation and unemployment. Generally, mortgage rates, which are linked to the bond market, inch down when economic data is weaker and inch up when that data comes in strong.
“The keyword right now is uncertainty,” said Colin Robertson, founder of mortgage news site The Truth About Mortgage. “Nobody knows what tomorrow holds when it comes to tariffs or government policies, and thus mortgage rates are in a holding pattern of sorts.”
While average rates are expected to gradually move closer to 6% in 2025, Robertson said the concern is that lower mortgage rates could be the result of a deteriorating economy. If US families are worried about job security and affording the high cost of living, they’ll be less likely to take on mortgage debt, even if rates get cheaper in a downturn.
Impact of tariffs on the housing market
While tariffs won’t impact the prices of existing homes, they are likely to drive up the cost of lumber and building materials used to construct new homes. That could lead to fewer new homes being built. “However, builders might find it challenging to pass on these costs to buyers due to limited pricing power,” said Mohtashami. “The overall effect of tariffs on home prices is likely to be minimal,” he added.
The more significant concern is what widespread tariffs and an escalating trade war could mean for mortgage rates. Economists worry that an uptick in prices and retaliation from other countries could hamper the Fed’s plans to lower interest rates. Mortgage rates, which are highly sensitive to fiscal policy and economic growth, could increase if inflation stays elevated.
Steep rates would not only worsen affordability for buyers, but would also discourage sellers from listing their homes for sale, further constricting the already limited inventory of homes for sale. According to Mohtashami, mortgage rates and the limited supply of existing housing have the biggest impact on the housing market.
Mortgage rates during a recession
Even if the Fed doesn’t cut its benchmark rate soon, talk of a recession alone can put downward pressure on mortgage rates. In times of high economic uncertainty, investors tend to flock to safer assets, like US Treasury bonds.
Increased demand for bonds can push bond yields down and lead to lower mortgage rates, said Odeta Kushi, deputy chief economist at First American Financial Corporation.
A weaker economy could provide some temporary borrowing relief in time for the home shopping season. “Lower rates normally generate more homebuying demand,” said Rob Cook, CMO at Discover Home Loans. But if cheaper mortgages are a by-product of a shaky economy, it could also keep the housing market frozen.
Put simply, a recession won’t improve housing affordability over the long term. “If consumers are uncertain about their own financial futures they will likely pause those plans until they have greater certainty and stronger confidence,” said Cook.
Already, rumors of a potential economic downturn are weighing heavy on consumer confidence. “Falling consumer sentiment can be a warning sign for the economy,” said Kushi. “The concern is that consumer sentiment can harden into sediment.”
Read more: Think a Recession Will Make Homebuying and Mortgages Cheaper? Not Quite
The spring homebuying season
In recent years, high mortgage rates have locked out new homebuyers. Expensive interest rates have also contributed to keeping resale housing inventory tight, as current homeowners refuse to give up the cheaper, sub-5% mortgage rates they scored just a few years ago.
If lenders reduce rates in time for the spring season, we could see an increase in homebuying. A slowdown in the economy could also encourage the Federal Reserve to resume cutting interest rates this summer, making overall borrowing less costly.
But even as rates and prices stay stuck, there has been a modest uptick in homebuyers entering the market. “For the first time in several years, we are witnessing encouraging trends in purchase application data,” said Logan Mohtashami, lead analyst at HousingWire.
After years of buyers sitting on the sidelines, the pent-up demand for houses is likely to explode at some point. “At least some potential homebuyers have become accustomed (or resigned) to mortgage rates at current levels,” said Keith Gumbinger, vice president at HSH.com.
Advice for buyers in the market
Prospective homebuyers waiting for mortgage rates to drop for the past few years may soon have to adjust to the “higher for longer” rate environment, with mortgage loan rates fluctuating between 5% and 7% over the longer term.
Rates around 6% may seem high compared to the recent 2% rates of the pandemic era. But experts say getting below 3% on a mortgage is unlikely without a severe economic downturn. Since the 1970s, the average rate for a 30-year fixed mortgage has been around 7%.
Today’s unaffordable housing market is a result of a combination of high mortgage rates, a long-standing housing shortage, expensive home prices and a loss of purchasing power due to inflation. While market forces are out of your control, there are ways to make buying a home slightly more affordable.
Here’s what experts recommend if you’re in the market for a home in 2025:
💰 Build your credit score. Your credit score will help determine whether you qualify for a mortgage and at what interest rate. A credit score of 740 or higher will help you qualify for a lower rate.
💰 Save for a bigger down payment. A larger down payment allows you to take out a smaller mortgage and get a lower interest rate from your lender. If you can afford it, a down payment of at least 20% will also eliminate private mortgage insurance.
💰 Shop for mortgage lenders. Comparing loan offers from multiple mortgage lenders can help you negotiate a better rate. Experts recommend getting at least two to three loan estimates from different lenders.
💰 Consider mortgage points. You can get a lower mortgage rate by buying mortgage points, with each point costing 1% of the total loan amount. One mortgage point equals a 0.25% decrease in your mortgage rate.
