Trump trade war could worsen housing affordability crisis

Here’s how

Last week, President Donald Trump announced the U.S. will impose a 25% tariff on steel imports and a 10% tariff on aluminum.

And while many expected the president to change his mind over the weekend, however that has not been the case.

Friday, and again Monday morning, the president showed his renewed commitment through several tweets, saying the U.S. is being taken advantage of by European nations and even our neighboring countries, Mexico and Canada.

Since announcing the new tariff, Republican lawmakers and conservative groups have spoken out against Trump’s decision, however the president continues to support his decision, saying he is not backing down.

So what does all of this mean for housing? January’s employment report from the U.S. Bureau of Labor Statistics showed wages increased at a rate of 2.9%, the highest annual increase since 2009, nearly solidifying a rate hike in March.

Now, as the Federal Reserve continues to watch inflation rates to determine its next move, a trade war and increase in tariffs could cause companies to pass increased costs on to their customers, creating a surge in inflation.

This could then lead to the Fed increasing interest rates at a faster pace. In a worst-case scenario, the Fed overtightening has historically led to recessions. But even without a recession risk, an increase in rate hikes will bring higher mortgage interest rates as they typically follow the general path of Treasury Yields.

The latest Mortgage Monitor report from Black Knight shows that a combination of rising mortgage rates and home prices already caused housing affordability to drop to its lowest point since 2009.

And rising mortgage rates are already a major concern among homebuyers, according to a new study from Mortgage rates have reached their highest level since December 2016, a fact that 34% of home buyers find concerning or very concerning.

While no official documents have been signed to enact the new tariff, Trump continues to voice his commitment to the tariff, despite the threat of a trade war.

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