U.S. Housing Market Faces 2025 "Lost Year" Amid Inflation, Tariff Uncertainty

The U.S. housing market is grappling with significant challenges due to the potential resurgence of inflation triggered by Trump's tariff policies, which could lead to an economic recession. Daryl Fairweather, the chief economist of Redfin, has warned that 2025 could become another "lost year" for the real estate market. Fairweather highlighted that the tight supply of housing is unlikely to ease, and the current construction challenges are exacerbating the problem. The ongoing tariff disputes and their impact on the economy are adding to the uncertainty, making it difficult for the housing market to recover. The situation is further complicated by the potential for increased construction costs and delays, which could deter new housing developments and exacerbate the supply shortage. The combination of these factors is creating a challenging environment for the U.S. housing market, with no clear solutions in sight.

Fairweather pointed out that the housing market is facing a severe supply-demand imbalance, with a lack of construction materials and labor shortages due to immigration policies. These factors are making it difficult for developers to build new homes, which is further tightening the housing supply. The tariff policies have also increased the cost of building materials, making it more expensive to construct new homes. This, combined with the potential for an economic recession, is creating a challenging environment for the housing market. Fairweather warned that the increased construction costs could have unpredictable effects on the broader economy, as housing inflation is one of the most persistent areas of price increases.

If housing prices rise at a slower rate than overall inflation, real housing prices could depreciate. However, Fairweather does not believe that a 2008-style housing crisis is likely to occur, as most homeowners have locked in low-interest-rate mortgages, which would deter them from selling their homes. Fairweather stated that the housing market is in an exceptionally difficult position, and if an economic recession and trade war coincide, it could severely impact property values. The affordability crisis in housing is worsening, as Trump's tariff policies have increased the cost of building materials, and immigration policies have led to labor shortages, making homeownership even more out of reach for many Americans.

For many Americans, the barrier to homeownership has become insurmountable. Trump's tariff policies have driven up the cost of building materials, and immigration policies have led to labor shortages, making the dream of owning a home even more elusive. The construction company PHM.US warned in its latest quarterly report that the cost of building materials has already increased, with key materials such as plumbing fixtures, water heaters, and tiles affected by a 10% global tariff. Although some building materials, such as copper and wood, have been granted tariff exemptions, the additional costs of imported appliances and other products will ultimately be passed on to consumers. Fairweather noted that for potential homeowners, the Midwest region may be the last "affordable" area for housing prices. However, for those who need to relocate to high-cost areas for career development, moving is not a viable option.

Despite the challenges, Fairweather offered constructive advice on improving housing affordability. She pointed out that the federal government does not actually control housing policy. Instead, this responsibility falls to local governments, which means that ordinary citizens can also push for increased housing supply by participating in local planning commission hearings. Fairweather said, "This is a way to improve the situation for all sectors of society. When rents rise, the most vulnerable groups are the first to face the risk of homelessness. If you want to change the situation, participating in local planning hearings is a good starting point."