The housing market has been hit hard by fears of an economic slowdown stemming from U.S. President Donald Trump’s tariff policies.
It has been confirmed that U.S. existing home sales in March, typically the peak season for the housing market and the most active period for transactions annually, recorded their lowest level in 16 years.
The sharp decline in transactions during the peak spring moving season has raised concerns about potential drops in housing prices, which constitute a significant portion of American household assets. This could lead to a pullback in consumer spending.
The National Association of Realtors (NAR) reported on Thursday that U.S. existing home sales in March plunged 5.9% compared to February, reaching an annualized rate of 4.02 million units. This represents the lowest March sales figure since 2009.
Compared to March of last year, existing home sales were down 2.4%.
All regions experienced a contraction in sales compared to the previous month.
The Western region, known for its high property values, was particularly hit hard with sales dropping over 9%. However, it was the only region to show year-over-year growth, attributed to robust job creation.
NAR Chief Economist Lawrence Yun stated that home buying and selling remained sluggish in March due to the affordability challenges associated with high mortgage rates.
According to Mortgage News Daily (MND), mortgage rates were notably high during January and February when contracts for March’s existing home sales were signed. The 30-year fixed rate mortgage, a common loan structure with fixed principal and interest payments over a 30-year term, exceeded 7%.
The 30-year fixed mortgage rate only began a consistent downward trend after February 20.
The slowdown in spring home sales can be interpreted as a precursor to a decline in U.S. home prices.
This situation could potentially lead to a weakening in consumer spending, which accounts for roughly 70% of U.S. Gross Domestic Product (GDP).
A decrease in the value of housing, the largest asset for most consumers, would diminish the wealth effect, thereby impacting consumer sentiment and spending.
While current home prices remain high, supporting robust consumer spending through the wealth effect, a downturn in housing prices could shake the foundation of U.S. consumer spending.
Yun noted that in stark contrast to the stock and bond markets, household wealth in residential real estate continues to reach new heights, highlighting that home prices have risen this year despite weakness in other financial markets.
He added that with real estate asset valuation at $52 trillion, according to the Federal Reserve Flow of Funds, each percentage point gain in home prices adds more than $500 billion to the household balance sheet.
Despite worsening consumer economic outlooks due to Trump’s erratic tariff policies, strong home prices appear to be shielding consumer spending from direct impact.
However, the significant drop in transactions during the peak spring moving season suggests a cooling U.S. real estate market. If home prices start to decline, consumers may tighten their belts, increasing the risk of an economic downturn.
The potential for a decline in disposable income due to rising inflation, triggered by the full impact of Trump’s tariffs, could lead to a further reduction in consumer spending.
Yet, it remains uncertain whether home prices will actually fall.
Trump’s immigration policies have led to the deportation of low-wage immigrant workers from construction sites, resulting in severe labor shortages and rising housing construction costs.
