The U.S. housing market remains stuck in a rut that could extend well into next year, challenging a key plank of President Donald Trump’s economic agenda to lower the cost of living and and bring down home prices.
Mortgage rates and a lack of new homes on the market remain the main obstacles to unbinding the $50 trillion-plus housing market. The sector has seen record high prices and notably fewer transactions since the Covid pandemic as overall home-buying costs have surged.
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The average rate for a 30-year fixed mortgage, pegged at 6.71%, barely budged last week, the Mortgage Bankers’ Association reported Wednesday.
“Markets remained focused on potential trade-policy changes,” while the Federal Reserve held the Federal Funds Rate at its current level, the group’s chief economist, Joel Kan, said in a statement.
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That’s likely a bad omen for lower rates. Federal Reserve Chairman Jerome Powell was pretty clear in his assessment last week that he’s in no rush to lower borrowing costs. And the Trump administration’s trade policy is likely to include higher building-materials costs and a short supply of construction workers.Â
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Homeowners have no incentive to sell
Owning a home remains a solid investment, with median prices rising 3.8% from a year earlier to a February record of $398,400. But with mortgage rates hovering near 7% and current owners tied to loans at an average of 4%, those owners have little incentive to sell and refinance.
Buying a home is tougher as well. Data from the Federal Housing Finance Agency suggest that a typical family would need an income of $103,850 a year to afford a $400,000 home, up nearly 13% from around $92,150 in 2022.
In addition, extreme weather and climate events, particularly a run of catastrophic storms over the South and Southeast, have sent home-insurance costs spiking. The average annual premium rose 25% between 2020 and 2024 to an average of $2,377 per household.
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The cost of building new homes — adding supply to bring down prices — is also facing headwinds from tariffs on key components such as Canadian lumber, which could face 40% duties as early as next month, and copper, which is expected to see new levies in coming weeks.
The National Association of Homebuilders has said tariffs will add around $9,200 to the cost of a typical new build, which was pegged at around $414,500 last month.Â
The trade group’s benchmark sentiment index hit a seven-month low in March, and the group noted that uncertainty about policy is hurting both homebuyers and development decisions.
Homebuilder Lennar: New-home demand slows
Lennar Corp. (LEN) , the biggest U.S. homebuilder by revenue, told investors last week that “actionable demand” in the new-home market “has slowed materially.” The company added that a “somewhat confused consumer and wavering consumer confidence have challenged the consumer’s desire and ability to transact.”
“The overall supply of homes has also remained constrained by years of underproduction,” Chief Executive Stuart Miller said. “Additional shortfalls in production will likely be triggered by now muted demand and higher construction costs across the housing landscape.”
One good sign toward lowering prices is that the level of existing homes on the market is starting to pick up. But the pace remains muted compared with longer-term averages.
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Current supplies would take around three and a half months to exhaust, when economists say a level of around four to seven months represents a solid supply/demand balance.
Homes are staying on the market longer as well, with the average listing last month pegged at 42 days, a four-day increase from the year-earlier period.
“Transactions will recover meaningfully only when new mortgage rates get much closer to the average rate of the stock, currently just above 4%,” said Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics.Â
“The Fed’s wait-and-see approach to resuming its easing cycle suggests housing market activity will remain very subdued throughout 2025,” he added.
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