By Mike Bodeen · 3 February 2025
Recent Decisions Could Spur Rate Increases
Last week we discussed why there’s a very real possibility that mortgage rates may not drop down in the foreseeable future, questioning the direction of inflation that may have been exacerbated by Saturday’s origination of tariffs against builder/lumber suppliers such as China, Mexico and Canada.
An equally fair question to ask, in my opinion, might be to ask how high will rates go and are we currently sitting at the bottom of long-term mortgage rates between 6% and 7%?
The tariff’s come at a time when huge numbers of catastrophic reconstruction will be taking place in California (wildfires) and Florida (hurricanes), not to mention our national need to build more homes. Home affordability has already and will continue to take a hit with the spikes we’re seeing in home/hazard insurance premiums. Renters will not be spared either as landlords will pass on their soaring costs to renters. A portion of a *Housing Wire* news item from the National Association of Home Builders (NAHB) written on Friday reads:
The **National Association of Homebuilders** (NAHB) sent a letter to President Trump Friday asking for tariff exemptions on building materials from Canada and Mexico. The letter follows a Trump announcement that the U.S. was levying tariffs of 25% on Canadian and Mexican imports that would go into effect on Saturday, which would hit homebuilders hard.
*The letter reads:*
“Our country is facing a severe housing shortage and affordability crisis, which you recognized on your first day in office by issuing an executive order that seeks to increase housing supply and affordability. Bringing down the cost of housing will require a coordinated effort to remove obstacles to construction, be they regulatory, labor or supply-chain related. The National Association of Home Builders (NAHB) stands ready to work with you to accomplish these goals. However, we have serious concerns that proposed 25% tariffs on Canada and Mexico will have the opposite effect, by slowing down the domestic residential construction industry.
“An ongoing challenge facing home builders is the cost and availability of building materials. Since January 2021, inputs to residential construction saw price increases of just over 30%. Our sector relies heavily on a diverse and cost-efficient supply chain for building materials such as lumber, steel, gypsum and aluminum. While home building is inherently domestic, builders rely on components produced abroad, with Canada and Mexico representing nearly 25% of building materials imports. Imposing additional tariffs on these imports will lead to higher material costs, which will ultimately be passed on to home buyers in the form of increased housing prices. Further supply chain disruptions from increased tariffs coupled with increased demand for materials could also hinder rebuilding efforts in areas affected by natural disasters, which you have pledged to help rebuild as quickly as possible…etc.
Real estate pundits are trying to answer the question, when will rates drop and how low will they go? An equally fair question to ask, in my opinion, might be to ask how high will rates go and are we currently sitting at the bottom of long-term mortgage rates between 6% and 7%?
Though I’m totally not qualified to pontificate on macro-economics, I do have an advantage over many younger “degreed professionals,” who by the way haven’t figured any of this stuff out either. I lived and worked during 17%-18% mortgage rates in the 80’s – though barely. I saw how an oil embargo in the middle east skyrocketed inflation, resulting in blocks long gas lines.
Aaaah, you say, U.S. oil production leads the world, and that can’t happen. Ummm, yes, we do currently lead the world. How’s the price of eggs doing for you these days? My car insurance has “spiked” in recent years – with no claims. I guarantee you something, it will always be something reaching for your pocketbook. It’s the way of the world. And 30-year mortgage rates will follow.
So what’s that all got to do with buying or selling a home?
IF you or someone you care about is waiting for rates to come down to buy, and IF they can qualify to buy a home now, then buy the home now for goodness sakes. If I’m wrong about the direction of rates, (and I pray I am) you can refinance at a lower rate. If I’m right, they will forever thank you.
A buyer’s greatest risk, in my opinion, is not to go forward now.