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How a Tariff Reversal Can Impact Housing

The White House is considering reversing some of the tariffs against China with the threat of recession ahead, Business Insider reports. According to the New York Times, reversing the tariffs against China is one of a range of measures that would be meant to protect a weakening US economy from recession, though The Times did not specify which tariffs officials were considering withdrawing. Additionally, the Washington Post reported on Monday that a payroll tax cut was being considered.

Business Insider states that economic experts have long warned that tariffs threaten US consumers, with a JPMorgan report on Monday estimating that the latest round of tariffs, set to take effect beginning on September 1, would cost the average US household $1,000 a year.

Earlier this month, the Dow Jones fell more than 800 points and the 10-year treasury yield briefly broke the two-year rate for the first time since 2005—an economic marker that has often proved a forerunner of recessions in times past. The Dow Jones Industrial Average dropped 800.49 points, S&P 500 fell 2.9%, and the Nasdaq declined 3%. In response housing industry economists have discussed how a recession and the stock market declines are impacting buyers and investors.

“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.”

According to Kapfidze, tariffs on Chinese goods 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.

Danielle Hale, Chief Economist of realtor.com, said the biggest victims of the market’s decline are luxury homes, since they have “considerably more exposure to stock investments.”

Data from Redfin revealed the market for luxury homes increased, although slightly, in Q2 2019. Average sales prices for luxury homes grew 1% year-over-year to $1.64 million, bouncing back from a 1.7% drop in Q1 2019.

“However, a possible secondary impact on the broader housing market can happen if the stock drop hits consumer confidence,” Hale said. “Even though most Americans have fairly minimal exposure to the stock market, its performance is widely covered in financial and mainstream news, and thus a prolonged or severe drop in the markets can rattle the confidence of consumers and homebuyers even if they have little direct exposure to stocks. So far, confidence has remained high, but the situation is still developing.”

About Author: Seth Welborn

Seth Welborn is a contributing writer for DS News. He is a Harding University graduate with a degree in English and a minor in writing, and has studied abroad in Athens, Greece. An East Texas native, he also works part-time as a photographer.
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