How to Tell What Your Home Will Be Worth in a Trade War

Wall Street Journal

12-04-2025

Stock and bond markets gave President Trump an immediate thumbs down on his tariffs. A verdict on what the turmoil means for American home values will take longer to play out.
On the one hand, an economic slowdown that leads to lower mortgage rates could make homes more affordable and boost demand from buyers. On the other, a recession is bad news for buyers if unemployment is rising. It's even worse if there are widespread mortgage delinquencies that force some owners to sell.
As it is, there is no relief on the rate front so far. In fact, long-term U.S. Treasury rates were rising this week, further muddying the housing waters.
In such an uncertain, fast-changing environment, investors and home hunters should watch these metrics for clues about where things are heading next.
Mortgage rates reflect moves in the 10-year Treasury yield, which surprisingly rose this week.
This was odd since investors usually buy safe-haven assets like Treasurys when the probability of a recession increases. The unusual move may reflect worries that tariffs will prove inflationary and make it hard for the Federal Reserve to cut rates. Or, it could be a more ominous sign that foreign investors are rethinking the safety of U.S. assets.
Big swings in the 10-year yield aren't good for home buyers trying to lock in a rate.
Volatility that leads to sudden moves lower in yields can also increase the risk that existing mortgages will be refinanced and paid back early. Because of this, holders of mortgage-backed securities ask for more compensation when bond markets are unpredictable.
This can widen the difference, or spread, between the 10-year Treasury yield and mortgage rates, raising borrowing costs in the housing market.
The rate on a 30-year mortgage remained stuck at 6.6% the week ending April 10, data from Freddie Mac shows. Mortgage rates have been key for how home prices reacted to previous stock market shocks. 'Mortgage rates matter. Sharp declines in [home] sales occurred when mortgage rates rose alongside the equity selloff,' Morgan Stanley's housing strategist, James Egan, says.
Missed mortgage payments are still low overall, and owners have built up a lot of equity in their homes. But there are signs of trouble in one corner of the market.
The delinquency rate on FHA mortgages has reached 11% according to the Mortgage Bankers Association. This is the highest level since 2013, stripping out a temporary spike during the pandemic.
FHA loans cater to riskier borrowers who don't qualify for a conventional mortgage because they have only a small down payment or weak credit. The loans are also a good proxy for the health of first-time buyers.
Many first-time buyers stretched financially to afford a home over the past four years. They might have gambled on being able to refinance when mortgage rates fell, but this hasn't happened yet.
Nearly half of FHA serious delinquencies are loans that were issued since 2020.
These borrowers haven't had time to build much equity in their homes, and their housing costs are high relative to their incomes. Nearly two-thirds of recent FHA borrowers have a debt-to-income ratio greater than 43%, data from John Burns Research and Consulting shows.
With such a big chunk of their wages going toward mortgage repayments, these borrowers could be vulnerable to foreclosure if the trade war causes a serious recession. That could put pressure on the overall housing market.
Shares in single-family housing REITs offer an immediate read of where investors think prices of American homes are heading.
The stock market is currently pricing the portfolios of Invitation Homes and American Homes 4 Rent at a discount to what houses are changing hands for in the open market. This is a sign that investors think home prices are unsustainably high.
The two companies' shares trade at 29% and 22% discounts, respectively, to their net asset value, based on data from real-estate research firm Green Street.
Although the discounts have bounced around since the Fed began raising interest rates three years ago, they have deepened by 4 percentage points since the White House's tariffs were announced.
Home builders have more completed-but-unsold new homes sitting on their lots than at any time since 2009. They are offering sweeteners such as price cuts and mortgage-rate buydowns to shift them.
Rick Palacios, director of research at John Burns Research and Consulting, says these incentives may give a purer signal about the state of demand than existing home sales.
A regular seller can always delist their home if they don't get the price they are looking for. Home builders can't do this without taking a hit to sales volumes. So they will keep cutting the price until they find a market-clearing level.
Usually, the incentives that home builders offer are equivalent to around 5% of the total value of a home, Palacios says. Today, the rate for some of America's top builders like Lennar is 13%.
There is a caveat: Many of the builders' unsold homes are in the Sunbelt, where the supply of homes for sale is much higher than other parts of the country. But demand is weak even before the impact of tariffs is felt.
Write to Carol Ryan at [e-mail]