WSJ Your Money Briefing - Buying a Home in 2025: How Tariffs and Labor Shortages Could Impact the Market

Episode Date: April 13, 2025

Many prospective homebuyers may find themselves locked out of the market again this year. What key signs should buyers watch for in the coming months? In the final episode of our special series, “Buying a Home in 2025: Navigating the Crunch,” host Ariana Aspuru takes a closer look at the ongoing challenges facing the housing market, with Wall Street Journal reporters Veronica Dagher and Nicole Friedman, and Redfin’s chief economist, Daryl Fairweather. We'll explore the challenges facing builders, from President Trump’s tariffs and the Federal Reserve’s plans for interest rates to the impact of potential deportation-induced labor shortages. We’ll break down how these factors will affect the construction of new homes and could shape the housing landscape in the future. Catch up on previous episodes here.  Sign up for the WSJ's free Markets A.M. newsletter.  Learn more about your ad choices. Visit megaphone.fm/adchoices

Starter homes are great for a lot of people, but as we're in our late 20s, we figured maybe just jump into a home that we could be in for a long time. And tell me how this search has gone the past few months. How are you feeling? Defeated, to say the least. That's Madison Stefano, and she's been looking for her first home for about four months. If you aren't owning a home, usually that means you're renting. And we figured, hey, before we renew our lease, we're going to get a house.

And it didn't work out that way. So we're currently month to month paying a lot more than we had budgeted for rent, which is difficult. Madison and her husband typically view between two to five homes per week in Connecticut. And they've started to forego things that they originally wanted, like a good school district. Going month to month on our lease speeds things up because unfortunately now that we're paying more in rent we have less to put away for buying a home. I think if we don't have anything in the next two or three months we would really have to consider potentially going back to a year lease

and trying it another time. They, like many buyers, have weighed their options in the housing market. Ideally, they don't want to wait, but they might have to. Here's your money briefing for Sunday, April 13th. I'm Mariana Aspuru for The Wall Street Journal, and this is the third and final episode of our series, Buying a Home in 2025, Navigating the Crunch. In episode one, we looked at the state of the current real estate market.

If you had to describe the housing market in three words right now, what would it be? Unaffordable, right? Unaffordable, but improving. And in our second episode, we explored how to become a better buyer. Are we still seeing people compete against all cash buyers? They're trying to. It's really tough, though.

Today, we're focusing on what lies ahead for the housing market. Many prospective buyers could find themselves locked out again this year. After the break, we'll discuss the key signs potential buyers should be looking for in the housing market. You might feel pressure to lock down on a home soon. We hear a lot about the spring home buying season this time of year. It's when demand is high and sellers can ask for higher prices. But why spring? So the spring and summer are usually the hottest times for the housing market

because people with kids usually want to move between school years. That's Wall Street Journal reporter Nicole Friedman. She covers the U.S. housing market. Families often want to shop in the spring, maybe go under contract in the spring so that they can move over the summer and kind of avoid as much disruption as possible for their children. And so that is really what drives that spring housing market. And then people also tend to list their homes in the spring because

they expect that's when the buyers are out. And so it's a little bit self-fulfilling that this idea that the spring is the busy time also makes it busier. Also, it's just nicer to shop in the spring and summer. Homes look beautiful. You're going out. You're seeing the gardens. And if you're picturing the home of your dreams, let's say it's me, you know, the sun is probably shining, there's a little bit of breeze coming through, some open windows. Oh, maybe there's like a nice reading nook, you know, in a sunroom where you can see a budding garden in the distance.

I mean, it's easy to picture it all. But for many buyers, that dream is still out of reach. There are people that just say like, I can't swallow buying a home at these prices. And so they're saying, you know, I'm really kind of waiting for a steep decline in home prices before I get in. But economists say that's unlikely. They just say, look at the supply picture, that the inventory of homes on the market, but also just the inventory of homes that exist in this country is below historical norms and below what demand is.

And they're saying that it's unlikely that we're going to see some major decline in home values the way that we saw back during the financial crisis. And so people that are really holding out for that might continue to be frustrated. But then there's also people I talk to who say, you know, I was waiting to see it get more affordable, but year after year, home prices kept going up. And so I felt like I shouldn't keep waiting. I should just jump in now because at least I'll get something. So what could change the picture for you? Not surprisingly,

the top factor that is going to shape the housing market this year is mortgage rates. And whether mortgage rates decline in a way that helps make it more affordable for buyers and maybe brings some of those buyers that have been on the sidelines into the market, or whether mortgage rates kind of continue to hover in this range where they've been between six and a half and seven percent and

In that case we might see a bit more kind of a static market So mortgage rates is like kind of the big bucket that we look at What are some other factors that could shape the housing market this year and say like two three years down the line? It always comes back to supply and demand. And so supply is a major factor. The number of homes on the market, the inventory of homes for sale has been low in recent years. And so we have seen that inventory is starting to rise and it's higher than it was last year. And that is good for buyers that gives them more choices that gives them more choices,

even though the market isn't what I was hoping for, I'd need to sell my home and find a different one. And then on the demand side, mortgage rates and home prices are major factors in terms of affordability. If mortgage rates come down this year or next year or the following year, that could definitely bring a lot more buyers into the market because it makes that monthly payment

more affordable. And then what happens with home prices, whether they continue to rise as they have been because that supply has been low, or if as more supply comes into the market, does that mean home prices kind of flatten out? Or in some parts of the country where there's been a big increase in supply maybe home prices could decline and that could also make it a little bit easier more affordable for buyers and bring some more of them into the market. Mortgage rates are heavily influenced by the Federal Reserve and lately they've been holding off on any drastic interest rate moves. Here's Federal Reserve chair

Jerome Powell at a meeting in March. We think it's a good time for us to wait for further clarity before we consider adjusting our policy stance. The Federal Reserve said it needed to assess how a barrage of policy changes on trade, immigration, and spending by the Trump administration could reshape the economy. We are in a moment of economic uncertainty. Daryl Fairweather is the chief economist at Redfin. She says that it's a bit too early to say where the economy will go. And the impact on the housing market is the same. Over the past few months, the Trump administration has led a whiplash on tariffs.

Some of them increased, some of them suspended. In return, countries have also threatened and imposed reciprocal tariffs. The back and forth has led to uncertainty in how spending, jobs, and the housing market could be affected. One way? The construction of new homes. When materials like lumber or steel cost more, then the cost of building new housing is higher. In terms of the tariff side, Michigan is going to be impacted in terms of their economy and Texas disproportionately because of the way those states manufacturing is so dependent on Mexico and Canada and that could drag down just productivity incomes in those areas,

which could weaken housing demand, it could increase supply if people are having to sell in order to get the equity out of their homes. We're probably not going to see very many foreclosures because people have so much equity in their homes coming off of all the value increases over the last decade. In terms of how it impacts housing affordability, I think it's just more complicated. It might make mortgages more affordable. If people don't have their jobs, then they're not going to be able to afford even the mortgages. In terms of personal affordability, that might not mean much to people if they can't afford the mortgage without their income. All this is very uncertain because we don't know how long

these tariffs are going to last. If the impacts on economic growth are going to be weaker or stronger than the impacts on inflation, all that kind of matters for how this pans out. A lot of our building materials come from other countries. According to the National Association of Home Builders, nearly 72 percent of the 8.2 billion dollars worth of sawmill and wood products imported in 2024 came from Canada. sawmill and wood products imported in 2024 came from Canada. Similarly, 74% of the lime and gypsum products that the US imported in 2024 came from Mexico. They're used to make a range of building materials like mortar, plaster, drywall, and concrete. Here's my colleague Nicole Friedman again.

So if tariffs are implemented, that could definitely mean higher material prices, and Friedman again. especially in markets where there's a lot of new construction, places in the southeast and southwest, that could be a big factor for buyers. How have tariff threats impacted the outlook for mortgage rates? Some economists think that some of the administration's proposed policies, including tariffs, will lead to higher inflation. And if inflation stays higher, then the Federal Reserve is likely to hold off on continuing to lower interest rates. Already, the Fed is in a bit of a wait-and-see mode to better understand what's happening with inflation. And so if we start to see inflation climbing again, it is likely that we won't see further interest rate cuts in the near term.

And while the Fed's interest rate decisions don't directly affect mortgage rates, they are correlated. And so as the Fed brings down those short-term interest rates, that does typically lead to lower mortgage rates as well. —Earlier this month, Fed Chair Jerome Powell said that the economy was likely to face a period of higher prices and weaker growth than seemed possible a few weeks ago because of larger than anticipated tariff

hikes announced by President Trump. But he indicated that the central bank was still comfortable with its wait and see stance. The Trump administration has also targeted immigration as a key focus area this year, which has broader effects on the housing market going forward. Immigrants make up one in four workers in the construction industry, and new policies

like revoking temporary legal status for some and increased deportations could hit the housing market in the future. There is concern that this could hurt the labor force, that there could just be fewer workers available to build homes at a time when builders do want to be building homes and expanding that supply. We have a supply shortage in this country. And some of that is fears of immigrants actually being deported, but also just if they are nervous about immigration enforcement, nervous about being deported, maybe people won't show up to work,

will be less willing to work. Uncertainty about tariffs and immigration policies mean that many experts can't say where the economy's heading, leaving consumers in a holding pattern. So how could that affect what you pay for a home down the line? That's after the break.

Consumer confidence is the measure of how people are feeling about the economy. According to a March report of the University of Michigan's closely watched index of consumer sentiment, it fell to 57 in March from 64.7 the prior month. Now that's the lowest level since 2022. And the measure of future expectations of the economy dropped to the lowest level in 12 years. Here's my colleague, Nicole Friedman. Consumer confidence has a huge effect on the housing market

because the most important thing for people planning to buy a home is how confident they feel about their job. Because buying a home is a major investment for many people. It's their biggest monthly expense. And if they're worried they're going to lose their job, they are not likely to make a big purchase, like buying a home. And so we are seeing more uncertainty,

especially in certain parts of the country, about the job outlook, because people who are federal employees or people whose employment is in the private sector, but maybe is tied to the federal government, like being a government contractor, people like that might be feeling more uncertain about their jobs right now

and about the security of their jobs. This uncertainty can mean that it's okay to hold on to your leases or mortgage rates before trying to find your next home. And not everybody can control their timing, but for people who do have more flexibility that can sometimes give them a little bit of an advantage in picking their moments. Despite so much going on in the housing market and a lot of questions about what the future

holds, Daryl Fairweather, the chief economist at Redfin, says that one thing remains true. Personal circumstances often matter a lot more than what's happening broader in the economy, but the broad economy impacts people's personal circumstances. So if you personally feel like your job is at risk because of tariffs and now is probably not the best time to buy or any of the other things that are making the economy uncertain right now, then I think that you should take that seriously and weigh it against your economic prospects. You could even look up the unemployment rate

for your specific industry and how that's changing or just like what's your likelihood of finding a job if you were to be laid off. I think all of that should weigh into people's willingness to commit to a monthly mortgage because that is the big thing that will hang over you. If you lose your job is that you keep having to pay. That mortgage, it's harder to sell a home

than it is to break a lease. So if you needed to downsize and restrict your spending, it's not a good time to commit to a mortgage. While mortgage rates are in a holding pattern and the impact of policies is unclear, prospective buyers like Madison, who you heard from at the top of the episode, are keeping their eyes on the future. I'm sure that when it does work out, we're going to look back and realize that everything that we went through is probably worth it.

And so this is just a part of the process of life. And I'm sure once we find a house, the next thing will be how do we decorate it? I know that there will be a time where this is hopefully a thought of the past. Yeah, yeah, I feel like that's that's going to be more of a hopefully a fun problem to have. Yes, absolutely. That's it for our three part series, Buying a Home in 2025, Navigating the Crunch. You can catch up on our previous episodes wherever you get your podcasts. We'll be back tomorrow with a new episode of Your Money Briefing.

I'm your host, Arianna Aspuru. This episode was produced by me, sound design by Shannon Mahoney. Our supervising producer is Melanie Roy. Aisha Al-Muslim is our development producer. Scott Salloway and Chris Sinzley are our deputy editors. And Falana Patterson is The Wall Street Journal's head of news audio. Thanks for listening.