A “Phase 1” trade agreement announced by President Donald Trump on Friday was shot down on Monday by Chinese negotiators, who said they want more time to consider the deal.
“The market is once again concerned that the hope we had on Friday came too early and that trade tensions are far from resolved,” Giovanni Staunovo, a commodity analyst at UBS Wealth Management, told the Wall Street Journal.
The fallout from the ongoing trade war ripples through the entire economy, per FOMC minutes released last week. It was the top concern among Fed policymakers at last month’s meeting. However, it has an outsized impact on the housing market, economists say.
Chinese imports “are literally the nuts and bolts that go into building homes,” Robert Dietz, chief economist of the National Association of Home Builders, said in an interview. “When you increase the cost of the materials that go into a home, you make that home more expensive.”
While most builders acknowledge there were “some abuses in trade” that needed to be worked out with China, the use of tariffs as a negotiating tool makes many housing-market watchers nervous, Dietz said.
Besides hiking the cost of construction, tariffs have an indirect impact on real estate demand, Dietz said. In areas of the U.S. where local economies are disrupted by the trade war, home building and home sales go down, he said.
“We see housing market weakness in areas where the economy has been affected, like agricultural communities or areas where manufacturing represents a significant share of employment,” Dietz said.
Single-family housing starts in areas dominated by manufacturing are down about 4%, Dietz said. Earlier this month, the ISM index showed September’s manufacturing activity at the most depressed level in more than a decade.
“I expect there will be a deal,” Treasury Secretary Steven Mnuchin said Monday on CNBC. The two sides made “substantial progress” last week in negotiations, Mnuchin said. Trump and President Xi Jinping are likely to finalize the agreement at a summit in Chile next month, he said.