US homebuyers confront a new wild card this year: Trump
Early indications don’t look especially promising
[WASHINGTON] It’s a tough time to be a homebuyer in the US. And reading the tea leaves on where the market might be headed is almost as challenging.
With prices still on the rise across much of the country, and mortgage rates hovering above 6.5 per cent, affordability will be a concern for many house hunters this spring. But there’s a big wild card: the new president.
Donald Trump’s tariff wars with Mexico, Canada and China have the potential to drive interest rates higher by reheating inflation – or push them lower if the economy instead is tipped into recession.
How all that might influence buyer behaviour in the prime season for home sales – when the weather warms and families look to land a deal before the new school year starts – is about to unfold. But early indications, from weakening consumer confidence and falling stock prices to sinking home-purchase contracts and a spike in deal cancellations, don’t look especially promising.
“The negative mood music seems to have resumed after a brief Trump bump,” said Thomas Ryan, North America economist for Capital Economics. “I don’t think house prices are going to fall, but I’m expecting a much cooler market.”
The good news is that the stubborn inventory shortage is starting to ease, giving shoppers more choices. That’s largely because homes are sitting longer. Properties that found buyers in February were listed for a median of 54 days before contracts were signed, down two days from the previous month, which was the longest stretch in five years, according to data from Redfin Corp.
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That doesn’t rule out the possibility for a wave of optimism to sweep in and give the market a gravity-defying lift. Even without a stampede of animal spirits, there’s a path for sales to improve, at least from last spring’s disastrously low levels, said Odeta Kushi, deputy chief economist at First American Financial Corp.
Homeowners who sell are often able to plough substantial amounts of equity into their next purchase, dulling the sting of trading a low mortgage rate for a higher one, she said. It would be harder for first-time buyers. But incomes are growing, a positive sign for affordability, particularly in Sunbelt markets where prices are softening and builders are producing smaller, less expensive houses, according to Kushi.
And if rates stay firm – even at elevated levels – that might give some buyers more confidence to move forward.
“If we have stable rates and the for-sale inventory continues to loosen, we could get a gradual improvement in purchases,” Kushi said. “We might see price cuts as inventory sits. But price cuts bring buyers off the sidelines.”
Location, of course, matters. In the Northeast and Midwest, prices are soaring and sales are slow because there’s hardly anything to buy. That’s not the case in markets such as Florida and Texas, where homebuilders have been especially active and demand has fallen off as the pandemic relocation surge fades into history.
South Florida is saturated with unsold condos, according to Alexandra DuPont, a Pompano Beach-based real estate broker. DuPont, originally from Canada, said many of her Canadian sellers are angry at Trump and unhappy with the US exchange rate and Florida’s sky-high property insurance premiums.
“I tell them if you’re really serious about selling this season, it really has to be priced reasonably,” DuPont said. “One client in particular is messaging me every week, saying what’s going on? What’s the update. There’s nothing to send because nothing is selling.”
The story is just the opposite in the Boston area, where the spring is shaping up to be another competitive one.
Elizabeth Bain, a Realtor based in Newton, Massachusetts, said that every weekend, her clients are getting caught up in bidding wars. One buyer lost out on a home in Waltham that attracted a dozen bids in the dead of the frosty New England winter. Another relocating from Seattle lost out on three houses before finally winning on his fourth try.
“I really hope as we get into March and April that there’s a noticeable uptick in listings,” Bain said. “But even then, it’s not going to meet this kind of demand.” BLOOMBERG
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