Mortgage rates could be negatively impacted by an ongoing trade war between the United States and Canada, Mexico and China, according to real estate experts.
Tariffs also could potentially increase prices on building materials, and more, and inflation invariably means mortgage rates will go up.
Nicholas Irwin, research director for UNLV’s Lied Center for Real Estate, said the current housing climate in Las Vegas and the rest of the country are already being strangled by high mortgage rates. He said it will take time for the trade war to play out in economic figures and making any predictions right now is a bad idea given how quickly things can change.
‘Wait-and-see approach’
“A wait-and-see approach is a good idea right now,” he said. “I think also we could think better about the effect of tariffs on house prices if we were in a lower mortgage rate interest environment. If mortgage rates were 3 percent, then I would think a lot of these extra costs coming in for [building] materials would be passed on to homebuyers. But now with mortgage rates so high there is less ability to pass on the full costs, they might just have to absorb more of it. And it’s not just lumber from Canada, it’s cement, vinyl plank flooring from China, and all the other things that figure into that.”
American tariffs on imports from Canada and Mexico were set to go into effect Tuesday before Trump agreed to a 30-day pause. A 10 percent tariff was placed on Chinese goods.
Matt Hennessy, a Las Vegas mortgage advisor, said we’ve already seen the impact the announcement of tariffs can have on the U.S. economy.
“Initially we are seeing a flight to quality as money flows out of the stock market and into bonds. Mortgage bonds and mortgage rates will be beneficiaries,” he said. “While the immediate impact may be perceived as good news for housing, it may be temporary. If inflation heats up as a result of tariffs, mortgage rates will rise. There are valid concerns surrounding the potential impact and renewed fears of an uptick in inflation as an unintended consequence by tariffs.”
Mortgage rates
The 30-year fixed-rate mortgage at 6.9 percent as of Tuesday. The mortgage rate has not been below 6 percent since September 2022.
According to Fannie Mae, mortgage rates are different than the overnight funds rate set by the Federal Reserve, noting that the 30-year mortgage rate is benchmarked to the rate of the 10-year Treasury note, so as the rate of the note moves, so do mortgage rates. Hennessy explained the bond market is considered a more safe, long-term investment rather than the stock market which can be more volatile.
Las Vegas Realtors President George Kypreos said the local residential real estate industry is taking a wait-and-see approach to the newly ignited trade war.
“I’m uncertain how the proposed tariffs might impact our local housing market. However, I remain confident that the Las Vegas housing market will remain as strong as any in the U.S. We will need to monitor the situation to see how the market reacts if these tariffs are implemented.”
Kypreos pointed to a letter the National Association of Home Builders sent directly to Trump regarding tariffs on homebuilding materials from Canada and Mexico, explaining that building costs have already increased 30 percent since January 2021 due to impacts on global supply chains caused by pandemic restrictions.
“Our country is facing a severe housing shortage and affordability crisis, which you recognized on your first day in office by issuing an executive order that seeks to increase housing supply and affordability,” read the letter. “Bringing down the cost of housing will require a coordinated effort to remove obstacles to construction, be they regulatory, labor or supply-chain related.”
Las Vegas finds itself in the middle of a housing crisis as a number of factors have pushed prices close to record highs including a lack of land to develop as the federal government controls the majority of land in the valley, bureaucratic slowdowns at the municipal and county levels, increased construction and labor costs due to inflation, along with elevated mortgage rates.
Contact Patrick Blennerhassett at pblennerhassett@reviewjournal.com.