Tariff rollback is good news for the lagging market
In addition to lowering costs, the 90-day pause could improve consumer confidence and rejuvenate the slow spring homebuying season.
Turning down the heat on a trade war with China may be just the news that beleaguered real estate agents needed in what has been a lackluster spring homebuying season.
On May 12, the U.S. and China announced a 90-day rollback of the high tariffs imposed last month as the two countries begin more formal negotiations on a trade deal. The U.S. will reduce tariffs on China from 145% to 30%. In exchange, China will reduce its tariffs on U.S. goods from 125% to 10%.
The news created a rally in the stock market, with the Dow Jones Industrial Average rising over 1,000 points — about 2.5% — by midday. Real estate stocks also jumped, with many trading 3-5% higher.
A confidence boost for buyers: The pause on high tariffs is good news for real estate for several reasons, according to Joel Berner, a senior economist at Realtor.com. Along with easing costs on raw materials and home appliances, the pause could help tame inflation, which would in turn boost consumer confidence — especially as market portfolios improve.
"When consumers do not feel confident, they are less likely to make a major financial decision like purchasing a home," Berner said. "Today's stock market recovery in the wake of the tariff pause means more money in homebuyers' pockets and a rosier outlook on their financial future, at least for now."
The National Association of Home Builders described the rollback as "a positive step" in a statement released shortly after the agreement was reached. NAHB Chairman Buddy Hughes urged the Trump administration "to move quickly to obtain fair, equitable trade deals with other nations that will result in the elimination of tariffs that are currently hurting building material supply chains and raising construction costs."
Though the spring homebuying season has been stagnant, there have been some signs that activity is picking up. Mortgage applications jumped 11% last week, and more people are touring homes now than they were a year ago. Even so, affordability and overall economic uncertainty appear to be the biggest hurdles for potential buyers.
Mortgage rates tick up: The one immediate downside with the stock market rally is that 30-year mortgage rates are creeping back up toward 7%, with Mortgage News Daily estimating that the rate for the morning of May 12 averaged 6.92%. The market is expected to remain volatile as people wait to see how inflation and revenue balance out, according to Matthew Graham, chief operating officer at Mortgage News Daily.
While mortgage rates are initially rising, the easing of tariffs will give the Federal Reserve more room to ease interest rates — something the Fed declined to do during its May 7 meeting. That should lead to lower mortgage rates and a boost in homebuying activity, Berner said.