The US housing market is showing signs of weakness at what is normally the peak selling season as prospective homebuyers hold off due to tariff-related economic uncertainty and stubbornly high mortgage rates.
Homes are sitting on the market for the longest period since 2019, according to real estate broker Redfin.
Existing homes, which make up the bulk of the US real estate market, sold at the slowest pace of any March since 2009, the National Association of Realtors said this month. Sales of new homes ticked up slightly, but not enough to offset that slowdown.
Applications for a mortgage to purchase a home dropped for three consecutive weeks in the period ending April 25, the Mortgage Bankers Association said this week.
“The tepid housing market signals a general sense of caution among consumers,” said Selma Hepp, chief economist at property consultant Cotality. “With 70 per cent of US GDP depending on consumer spending, it could quickly result in a recession.”
High mortgage rates have constrained the US housing market since the Federal Reserve raised borrowing costs in 2022. Many mortgages in the US cannot be carried over to new houses, so homeowners who locked in at a lower rate are often unwilling or unable to move.
Mortgage rates dropped at the start of the year, but ticked back up again following Trump’s so-called “liberation day” tariff announcement at the start of April.
The average 30-year mortgage rate was 6.76 per cent in the week ending May 1, according to Freddie Mac. That, along with plunging consumer confidence and rising unemployment fears, has decreased hopes for relief in this year’s critical selling season.
Buyers are “frozen in place” as they struggle to figure out how the administration’s new trade levies will affect mortgage rates and housing costs, said Rick Palacios Jr, director of research at John Burns Research & Consulting.
Volatility in financial markets has also held back those hoping to draw on stock investments for downpayments, said Charlie Dougherty, a senior economist at Wells Fargo.
DR Horton, the largest homebuilder in the US, cut its outlook in April after missing first-quarter earnings expectations. Sales also dropped year-on-year at PulteGroup, another major homebuilder, as it faced “more volatile and less predictable” demand, said chief executive Ryan Marshall.
Housing costs were a key issue for both parties on the campaign trail, but have since January largely taken a back seat to Trump’s trade and immigration policies, which economists warned could further compound long-standing affordability challenges.
The median monthly mortgage payment hit a record high of $2,870 for homes that went under contract in the four weeks to April 27, Redfin said on Thursday.
Builders estimate that Trump’s new trade levies will raise materials costs by an average of $10,900 per home, which could trickle through to prices, according to a survey by the National Association of Homebuilders.
Renovations could also become more expensive under the new tariffs, hitting entry-level homebuyers particularly hard, according to Hepp.
In a static market, many homebuilders have resorted to spending more on special offers, including design credits and interest rate buydowns, to offload their stock.
Incentives costs were equivalent to 12.9 per cent of homebuilder Lennar’s revenues in the first quarter of 2025, the most since 2009. DR Horton, likewise, expected to offer “elevated” incentives throughout the spring season, said chief executive Paul Romanowski.
“We’re seeing more builders having to lower prices and offer incentives just to get houses moving — and this should be the easiest time of year to sell a home,” said Ali Wolf, chief economist at construction data company Zonda.
Jay Nix, a realtor in Washington DC, said aspiring homebuyers were “more unsettled” than he had seen in more than a decade helping people buy and sell homes. He said the district’s many government workers were particularly “skittish” as the Trump administration continues to sack federal employees.
“I’ve had clients putting a pause on their search because of economic fears and I’ve had people who’ve lost federal jobs and been forced to stop searching,” said Nix. “I’ve also got clients holding out for possible deals in case there’s a downturn later this year.”
Nevertheless, there are some silver linings for any buyers still able to put in an offer, as houses sit on the market for longer.
Kay Houghton, a realtor based in northern Virginia, said several of her clients had stopped their home searches “because of uncertainty with their government jobs.”
Others, however, were seeing “an opportunity to get into a home with less competition”.