Tariff Impacts on the DMV Real Estate Market
Tariff Impacts on the DMV Real Estate Market
The recent economic policy changes stemming from the Trump Administration’s tariffs pose many questions for investors and buyers looking to participate in the current real estate market. Is it a good time to buy? Is it a good time to sell? What is happening with interest rates? Should I wait for interest rates to come down? Consequently, the team at Federal Title & Escrow Company wanted to answer each of these questions and distill our understanding of how tariffs impact the DMV real estate market.
What to know if you are a buyer.
Right now, homes are staying on the market for longer periods of time, which gives buyers more leverage as it relates to negotiating purchase prices. These longer home sale periods enable Buyers to also benefit from taking their time to ride out a temporary spike in mortgage rates before locking in a rate. If U.S. tariff policy plateaus and retaliatory trade policies cease, we would not expect mortgage rates to spike but, as explained below, we also do not anticipate a significant reduction. However, once interest rates do come down, buyers can refinance their home loans to lock in lower interest rates and monthly mortgage payments. For critical information that can help you successfully navigate this process or if you simply want advice on how to best prepare to refinance once interest rates do drop, feel free to give us a call any time.
What to know if you are a seller.
The good news for sellers is that home prices in the DMV have maintained their value overall, enabling sellers to receive good returns. Mortgage rate uncertainty may be cause for seller hesitancy to sell in order to avoid purchasing a home with a higher interest rate. It is worth noting that almost 60-70% of financed homes in the US have a mortgage rate below 5% and almost 40% of US homeowners own their homes outright without a mortgage. Often these homeowners did not start off with an interest rate below 5% but instead refinanced their home loans to obtain a lower rate. Home sales are certainly still happening in the DMV with the average home spending around 45 days on the market. With the current pause on country-specific tariffs, and thus a relatively more stable economy, we do expect consumer confidence to gradually rise.
What tariffs are directly affecting the real estate market?
- 25% tariffs on steel and aluminum (if subject to Section 232 tariffs these would not be subject to the reciprocal tariffs)
- Threatened tariffs on lumber, timber, copper, gypsum and possibly home appliances
These tariffs would cause new construction developments to significantly increase the cost of homes, flips and renovations. Building materials had already increased by 34% from December 2020.
Note: There is also a 10% baseline tariff on most countries with notable exemptions for some electronics and tech components. All country-specific tariff rates, other than China, were suspended until July 9th.
Changes to inventory in the DMV
- New listings year to date are 11.9% above their FY 2024 levels (possibly due to increases in new builds).
- Active listings are up 20% (possibly due to an increase in days on the market).
- Home prices are moderating, and we are returning to more stable home prices than seen in FY 2021 and FY 2022.
- Median days on the market have increased in D.C., Alexandria City, Loudon County, Federick County, and Prince Georges County. Falls Church City experienced a dramatic drop from 69 days to 4 days. Arlington County’s days on the market remained consistent.
Mortgage Rates
- Between April 4th and April 14th 30-year mortgage rates increased from 6.69% to 7.2%. This volatility is largely due to the unpredictability of U.S. tariff policy changes as well as diminished investor confidence in the U.S. 10-year Treasury note.
- Economic uncertainty typically prompts investors to move their capital into bonds for more reliable returns, which, given the inverse relationship between bond prices and yields, typically leads to lower mortgage rates; however, recently reduced investor confidence in Treasury notes brought about a sharp sell-off and a corresponding spike in Treasury yields.
- The U.S. Federal Reserve Chair Jerome Powell confirmed on April 16th that central banks are waiting for more data due to “fundamental changes” in the economy’s direction before changing interest rates.
Lookback: In 2018, the U.S. imposed tariffs on China, the EU and other nations, which were met with retaliatory tariffs. This affected around $121 billion of U.S. exports and contributed to interest rates rising in 2018. Interest rates began to drop in 2019 due to modest rate cuts by the Federal Reserve made possible by low inflation and strong unemployment metrics.
Other economic indicators
The U.S. inflation rate is currently 2.4%, which is lower than expected and lower than in recent years. The U.S. unemployment rate currently ranges between 3.9% and 4.2%, which is considered a healthy rate. Continued trade wars, market supply disruptions, erosion of consumer confidence, stock market declines, rising interest rates and sporadic changes in 10-year Treasury note yields could lead to a recession but stable economic policy could prevent this from occurring.
We can help!
If you have any questions on DMV real estate market trends, types of deals that are currently closing at our various locations in the DMV or just want to learn more about the services we provide, please feel free to reach out to our team.
Written by Emely Toro, contact Emely at [email protected].
