World Economic Conditions and U.S. Housing

As the trade war heats up, economists warn that a global recession is on the way, according to Bloomberg. Lawrence Summers, a former U.S. Treasury secretary and a White House economic adviser, told Bloomberg that the recession risk is “much higher than it needs to be and much higher than it was two months ago,” though he notes that he still sees a less than 50/50 chance that the U.S. enters a recession in the next 12 months.

Earlier this week, housing economist noted how current economic conditions around the world will impact the U.S. housing market.

“Sharp and deep stock declines reduce confidence among all players in the economy. As such, potential homebuyers may become more cautious about making such a significant and long term financial commitment,” said Tendayi Kapfidze, LendingTree’s Chief Economist. “Others may see their down payment funds decline if they were keeping some of the money in the stock market. The stock decline is accompanied by a significant decline in interest rates so this makes the monthly payments more affordable for buyers who chose to follow through.”

A report by the National Association of Home Builders (NAHB) in June stated the tariffs on $10 billion worth of materials has contributed to the nation’s affordability issues. The NAHB states that regulations account for 25% of the price of a single-family home. 

“Removing regulatory barriers that contribute to the increased costs of housing will pave the way to homeownership,” said NAHB Chairman Greg Ugalde, a builder and developer from Torrington, Connecticut. “Home builders and the residential construction community are committed to working with Congress to ensure homeownership is within reach of hard working families.”

Kapfidze said tariffs on Chinese goods, specifically those related to homebuilding, will be passed through the cost of new construction and renovations. He added the sector that could be hit the hardest are lower-priced homes, as “thin margins on lower-priced homes will shrink further.” 

“This will exacerbate the inventory challenge at the lower end of the housing market, accelerating prices here beyond the added tariff expense, and worsening the affordability and availability problems in this part of the market,” Kapfidze said.