Will Tariffs and Economic Policies Crash the Housing Market in 2025?

Is the dream of owning a home in America fading? For many, the answer is unfortunately leaning towards yes, and a growing sense of unease is settling in about the future of the housing market. The stark reality is that Americans Are Losing Faith in Trump’s Ability To Fix the Housing Market—With 70% Fearing an Impending Crash, according to recent surveys. This widespread anxiety signals a major challenge for the current administration and paints a concerning picture for anyone hoping to buy, sell, or even just stay in their homes.

Will Tariffs and Economic Policies Crash the Housing Market in 2025?

As someone who’s been watching the housing market for years, I can tell you this level of pessimism is hard to ignore. It's not just a fleeting worry; it's a deep-seated fear that's taking root as we head into what should be the busy spring homebuying season. Let's dive into what's fueling this growing distrust and explore what it really means for the average American.

The Growing Shadow of Doubt: Why the Faith is Fading

President Trump campaigned with promises to make housing more affordable, aiming to lower mortgage rates and ease the financial burden for homebuyers. However, recent data suggests that these promises haven't translated into reality for many Americans. In fact, his administration's policies, particularly on trade, seem to be having the opposite effect, breeding uncertainty and fueling fears of a market downturn.

One key factor highlighted in a recent Clever Real Estate survey is the impact of tariffs. A significant 72% of Americans believe Trump's trade policies will hurt the U.S. economy, and a staggering 81% are worried about the broader implications of tariffs and potential trade wars. This economic anxiety directly translates into housing market fears, with 70% now fearing a housing market crash.

It's not hard to see why. Tariffs can lead to increased costs for goods and materials, potentially driving up inflation. Inflation, in turn, often leads to higher interest rates, and guess what? Higher interest rates directly impact mortgage rates. This creates a vicious cycle that makes housing less affordable, not more.

70% Fear a Crash – What Does That Really Mean?

When we see a number like 70% fearing a housing market crash, it's important to understand what's behind that fear. It's not just about abstract economic theories; it's about real-life anxieties. The Clever Real Estate survey also revealed that 32% of respondents are worried they won't be able to afford their housing payments if the economy weakens. This is a huge concern for homeowners and renters alike.

Think about it: for many families, housing is the single biggest monthly expense. The fear of losing a job or facing reduced income due to a weaker economy, combined with already high housing costs, creates a perfect storm of worry. People are looking at their budgets, seeing the strain, and wondering if the housing market they're in is about to crumble beneath them.

Expert Insights: Is a Housing Market Crash Really Coming?

While the anxiety is palpable, it's crucial to get perspectives from experts who understand the intricacies of the housing market. Joel Berner, a senior economist at Realtor.com®, offers a balanced view. He acknowledges the current anxieties, stating, “There's no doubt that the current state of the housing market is a source of anxiety for prospective buyers and sellers.” He points out that “Buyers are faced with high mortgage rates, which are poised to remain high due to the inflationary nature of the Trump administration's trade policy.”

However, Berner also provides a crucial counterpoint: “Still, Berner does not view a housing market crash as likely in the near future, because for now, demand for homes remains strong, even among those currently unable to afford them.” This is a critical point. Despite affordability challenges, there's still a significant underlying demand for housing.

Berner suggests that if prices were to drop, it could actually trigger a surge in buying activity from those who have been waiting on the sidelines due to affordability issues. This “pent-up demand,” as he calls it, could act as a natural stabilizer for the market, preventing a full-blown crash.

The Missing Generation: Affordability and Household Formation

To understand the depth of this pent-up demand, let's look at some more data. A recent report from the Realtor.com economic research team highlights a concerning trend: Gen Z and millennial household formation fell short of demographic expectations by 1.6 million last year. That's a massive number! Why? Primarily because of the lack of affordable housing.

This means there are millions of young adults who, under normal circumstances, would be forming their own households – buying their first homes, starting families. But they are being held back by high prices and unfavorable market conditions. This pent-up demand is a double-edged sword. On one hand, it could prevent a crash if prices fall. On the other hand, it represents a huge unmet need and a significant social and economic challenge.

Beyond Tariffs: The Underlying Issues Weighing on the Market

While Trump’s trade policies and tariffs are a recent trigger for anxiety, the housing market's problems are not new. They are rooted in longer-term trends that have been building for years. As Wells Fargo economists noted in a research note, “The tepid pace of home sales can not be blamed on a recession. Rather, the main factor weighing on residential activity continues to be adverse affordability conditions. In addition to high mortgage rates, home prices continue to rise.”

Let's break down these core issues:

• Elevated Mortgage Rates: Mortgage rates have remained stubbornly high. They've been above 6% since September 2022, and often hovering between 6% and 7%, with occasional spikes even higher. This significantly increases the cost of buying a home.
• High Home Prices: Despite slower sales, home prices are still rising in many areas. The Case-Shiller home price index, a key measure of home values, was up 4.1% in January from a year earlier. This means that even with higher rates, the overall cost of buying a home remains high.
• Weak Home Sales: January saw a total home sales pace of just 4.7 million annually. This is a weak figure, comparable to the period after the Great Recession. It shows that fewer people are buying homes, further indicating affordability issues.

Consumer Sentiment: A Litmus Test for Market Confidence

Consumer sentiment surveys provide valuable insights into how people are feeling about the housing market and their own financial situations. Fannie Mae's latest monthly index of homebuying sentiment shows a worrying trend. It declined in February, largely driven by increased skepticism that mortgage rates will decline in the next year.

Key findings from the Fannie Mae survey include:

• Good Time to Buy: Only 24% of consumers think it's a good time to buy a home. This is a very low number, highlighting the widespread belief that it's currently a challenging market for buyers.
• Good Time to Sell: While a higher percentage (62%) still think it's a good time to sell, this figure is also dipping, suggesting that even sellers are starting to feel less confident.
• Personal Financial Outlook: The most concerning figure is the jump in respondents who expect their personal financial situation to worsen in the next 12 months. This figure rose from 15% in January to 22% in February, reaching the highest level in over a year. This signals a broader economic unease that is spilling over into housing market fears.

The Mortgage Rate Rollercoaster: Hopes Dashed

Many had hoped that as the Federal Reserve started cutting interest rates last fall, mortgage rates would follow suit, providing some relief to the housing market. Unfortunately, that hasn't happened. Mortgage rates have remained stubbornly high.

The average rate for a 30-year fixed mortgage was 6.67% for the week ending March 20th. This is still significantly higher than the rates many homeowners locked in a few years ago, leading to a phenomenon known as the “lock-in effect.” People who have low mortgage rates are hesitant to sell and move because they would have to take on a much higher rate on a new mortgage. This further reduces housing inventory and keeps prices elevated.

Adding to the pessimism, a recent survey from the Federal Reserve Bank of New York revealed that households expect mortgage rates to rise to 7% a year from now, and remain that high for three years. These are record-high expectations and reflect a deep-seated belief that high mortgage rates are here to stay.

Looking Ahead: Navigating Uncertainty

What does all this mean for the future? The Realtor.com economic research team's 2025 forecast had projected mortgage rates to fall to the low-6% range by the end of the year. However, even Joel Berner acknowledges that rates in the “high-6% or low-7%” range are “certainly not out of the realm of possibility.”

The reality is that the housing market is in a state of flux. High mortgage rates are squeezing buyers and sellers, affordability remains a major hurdle, and consumer confidence is wavering. While a full-blown crash may not be imminent due to underlying demand, the market is undoubtedly fragile and vulnerable to economic shocks.

For potential homebuyers, this means it's essential to be realistic about affordability, shop around for the best mortgage rates, and be prepared for a competitive market, especially for more affordable homes. For sellers, it means pricing homes strategically and understanding that the days of easy sales and rapid price appreciation may be over for now.

Ultimately, the housing market’s future trajectory will depend on a complex interplay of factors, including inflation, interest rate policy, economic growth, and consumer sentiment. One thing is clear: the anxiety Americans are feeling about the housing market is real and justified. Addressing these concerns will require a comprehensive approach that tackles affordability, supply constraints, and broader economic uncertainties. Whether the current administration can effectively address these challenges remains to be seen, but the growing lack of faith is a stark warning sign that cannot be ignored.