Redfin: Tariff Fears Drive Up Mortgage Rates, Throwing 2025 Off-Track

Dave:
A fear of tariffs is driving up mortgage rates right now and slowing down the market. Today. We’re uncovering how and why tariffs are playing such a big role in the housing market right now and why some forecast for 2025, including my own might already be wrong. Joining me to talk about all this is Redfin’s, chief economist Chen Zhao, who is going to help us understand this whole situation with tariffs and share some insights into why all this stuff that President Trump has been talking about is spilling over into mortgage rates and subsequently into the housing market. Plus she’s going to share with us a pretty crazy new survey. It was shocking to me showing that a third of homeowners played to never sell their homes and Chen is going to share what I think is a pretty hot take on the long-term value of real estate. Let’s jump in. Jen, welcome back to On the Market. Thanks for being here again.

Chen:
Thanks so much for having me, Dave.

Dave:
Well, I’m excited to talk to you. You and your team do such great research at Redfin. I’m hoping you could help us all by starting with just an overview of the housing market as we enter 2025, at least as you and your team see it.

Chen:
Sure, absolutely. So coming into 2025, I would say that the housing market is a little bit sluggish so far. I think the main challenge really is that mortgage rates are sitting just above 7%. So we are starting the year with pretty high mortgage rates, just a little bit higher than where we were a year ago. The other thing that’s kind of holding the market back right now is that we were kind of seeing a lot of extreme weather patterns across the country. Obviously we have these wildfires in California, we have extremely cold weather and large parts of the country that don’t really see that kind of weather very often.

Dave:
Yeah, snowing in Florida the other day.

Chen:
Yeah, so pretty crazy. And then in addition to that, we inaugurated a new president and that also causes different patterns of behavior in the housing market where some people might be holding off to see kind of what happens with the new administration overall. We ended the year with pending sales down a little bit in December, and I think we’re still down a little bit to start off the year right now. And what we’re seeing in terms of demand for tours from Redfin is also down quite a bit from where we were in the last couple of months. So it does seem like the market is a little bit sluggish and high rates probably go a long way to explaining that sluggishness.

Dave:
That’s unfortunate to hear because I feel like the general consensus has been that 2025 was going to be a year where we saw at least a modest uptick in sales volume and it sounds like we’re not quite there yet. Do you think that’s going to, I know you don’t have a crystal ball, but do you anticipate that that hypothesis that I think a lot of forecasters had could still come true throughout the course of the year?

Chen:
Yeah, I think over the last couple of years I’ve often wished that I had a really good crystal ball, but it’s been hard. It’s been very volatile these last couple of years. I think you’re right though that in general forecasts around the end of 2024 were that 2025 will see a little bit of an uptick there, I think is a lot of uncertainty. A lot of that has to do with we do have a new administration in place. The policies that might come into play, what that new administration could really affect mortgage rates a lot and that could really affect the direction of the housing market. That being said, the last couple of years, the pattern that we saw in the housing market was that we started the year strong and things gradually got worse over the course of the year. This year what we’re seeing is that we’re actually coming in a little bit weaker, but I think that that doesn’t necessarily mean that this year will end weaker than the last couple of years. So home sales for the last couple of years was right around 4 million for existing home sales last year, 2024 was down about 1% from the previous year. This year actually has the potential I think to get a little bit better, although there is a lot of uncertainty and we can talk about those sources of uncertainty more, but I think that it still holds that we could expect that this year you see a little bit of an uptick maybe somewhere in the single digit range in terms of a percentage increase from last year.

Dave:
One of the things I’ve noticed about redfin’s predictions for the coming year is that you’ve had mortgage rates sort of on the high end of consensus. It seems like most people feel like mortgage rates are going to go down. Some people say as low as five and a half, five and three quarters. I think in your reporting you said about 6.8%, which is more in line with what I’ve been thinking. I just keep thinking that there people are overly optimistic about rates. Can you just tell us a little bit about what went into that forecast and why you find yourself on the high end of the range?

Chen:
So first of all, I would say we would very much welcome lower rates. I think everyone would feel lower rates. I think what’s holding us back is that I think a few things. So I would put them into two broad buckets. The first is the strength of the economy. The second is fiscal policy coming from DC on the first bucket, the strength of the economy. What we’ve seen from the economy the last couple of years is just that even though economists keep predicting a recession that there must be weakness right around the corner because the Fed has brought rates up so high and just kept them so high for so long that that is just not happening. The labor market is still strong right now. The latest data that we have is that the unemployment rate is 4.1%. We’re still creating about, it seems like 180,000 jobs per month.
That was the average rate over 2024, and that is very comparable to what you saw in 20 16, 17, 18, 19. This is all consistent with strong economic growth right now, and this is despite where the Fed has been keeping interest rates. So in that set of circumstances where inflation is also still just a hair above where the Fed wants it to be, so year over year core PCE is about 2.8% right now. That means that the Fed really has very little incentive to cut. So right now Fed is predicting 2 25 basis points cuts this year. That’s what markets are expecting as well. We got four in the last quarter, 2024, but it really seems like we’re slowing down and we might really be coming to a halt on those rate cuts. So I think that’s one bucket of issues that really don’t point to rates coming down in the near term.
And if anything, I would say it seems like we’re slowly coming to the realization that we’re just in a new regime where rates just need to be higher overall. I almost think of this as when you’re entering middle age, your metabolism slows down and it’s just like you’re in a new regime now. Things are different, so there’s no normal that you’re going back to. And then the second thing is what’s happening with fiscal policy and trade policy in dc? So when you’re looking at the 30 year mortgage rate right now, so in mid-September that hit, if you look at mortgage news daily, about 6.1% today it’s sitting about 7.1%. A lot of that increase came right around November, right around the election in the weeks leading up to the election and right after the election. What that was in reaction to was this expectation that when President Trump comes into office that he would levy a lot of new tariffs on different countries and those tariffs are inflationary.
That’s what economists would expect and that would lead to higher rates. So what I would say is that one percentage point difference between where mortgage rates are right now and where they were in mid-September, this is not a very precise estimate, but a good half of it is probably because of trade policy or expectations around trade policy. Now of course, Trump was inaugurated on Monday and what so far we have seen no real action on tariffs and we’ll continue to see a monitor where this actually lands. But as expectations around that change, mortgage rates could go up or down. But if we see really any significant action on tariffs, especially tariffs that are really broad based that affect a lot of goods across a lot of different countries, that will really keep rates high. And then the second part of the fiscal policy coming from DC is really tax policy and government spending. What we’ve heard from the new administration is a desire to continue or even increase the tax cuts from the TCJA. So if we see any increase in the government deficit, what that usually means is higher rates essentially.

Dave:
Can you just explain why increase in deficit, we already have this huge deficit. If it potentially goes higher, why does that mean mortgage rates are going to stay higher?

Chen:
So when the government runs a deficit, what it has to do is it has to borrow money. And the way the federal government borrows money is to issue treasury securities. So that could be short-term treasury debt, it could be long-term treasury debt, but in effect, you have more supply of treasuries out there. And once the supply of anything increases, that means usually the price decreases though for government bonds when the price goes down, the yield or the rate goes up. So we see this anytime there’s concern among investors about how much deficit and debt the government is taking on, what you see is rates going up. What we’re most concerned about when we’re thinking about housing is tenure treasuries, right? That’s kind of the benchmark government security. So if we think that there’s going to be more deficit, that usually means the yield on the 10 year goes up and what almost always follows is that 30 year mortgage rates go up as well.

Dave:
Okay, great. Yeah. Just to summarize for everyone, just so everyone really understands here, what China is saying is that when there’s a large deficit, they have to issue more treasuries or bonds, and basically that floods the market with a supply of bonds. And when that happens and demand stays constant, it pushes down the price that people are willing to pay for those treasuries When that happens, because in the bond market, treasuries and yields are inversely correlated, that means that yields go up and that pushes mortgage rates up. And so it sounds like you’re saying one of the big components here of mortgage rates going up is all this policy in DC that is potentially creating a bigger deficit. And I wanted to circle back to something you said earlier because it seems to me, and correct me if you think I’m wrong here, is that a lot of this is just because of the uncertainty. I think the market can adjust or will adjust if tariffs go in place, if a tax cut goes in place that we know the details of. But just given that Trump was inaugurated a few days ago and no one really knows the details of this, it seems to me that the market is being extra cautious, just not knowing what to expect and trying to maybe just step back a little bit and wait to see what actually comes next.

Chen:
I think there’s definitely a component of that. So let’s just take tariffs for example. This tariffs are something that’s kind of easy to quantify. What kind of tariffs are you putting on which countries? I think from the market’s perspective, what President Trump and others around him have said really create a wide range of possibilities. So during the campaign, president Trump mentioned potentially we’ll do 60% tariffs on China, maybe we’ll do 10, 20% tariffs on the rest of the world. And those numbers moved around a little bit. I don’t think markets are pricing in anything like that.

Dave:
Okay.

Chen:
I think what markets are pricing in is some fraction of that happening. Something that I’ve been paying really close attention to is research reports coming from Wall Street investment banks, because that gives you a pretty good sense of what the street is thinking is very likely to happen. For example, Goldman Sachs put out some research earlier this week. They would guess that the most likely tariffs to be implemented. What’s about 70%? Odds are very specific tariffs on some goods coming from China. So there’s some goods that we already put tariffs on from China, and those tariffs could increase by 60 percentage points or some of ’em 25 percentage points for others. But targeted tariffs on certain goods from China and then also on cars from Mexico, which might see up to a hundred percent tariffs, but they’re only putting a 25% probability on an additional across the board, 20% tariff on all goods from China and only 25% odds on and across the board, 10% tariff on all goods from all countries. And then President Trump has mentioned a couple times that he would like to put 25% tariffs on all goods from Mexico and Canada, and they’re only putting 20% odds on that right now. So what we’re seeing right now in the mortgage rate, which is kind of reflecting what Wall Street expectations are, is really only a fraction of what President Trump has already said. So in that sense, I wouldn’t necessarily say that markets are conservative right now because the eventuality certainly there’s a lot of scope for it to be a lot worse.

Dave:
However,

Chen:
On the flip side, there is also a lot of scope for it to be a lot quicker. So for example, on day one, we saw flurry of activity from the Trump administration, but we didn’t really see any real concrete action on tariffs. So there was a directive to start doing investigations and to report back by April 1st. So we saw some chatter about these 25% tariffs on Mexico and Canada and maybe 10% on China, but there wasn’t any, Hey, we’re actually doing it right now so that you could almost read as a signal. Maybe things will actually be less severe than anticipated, but at the end of the day, I think what you really have to say is that there’s just a lot of uncertainty and we don’t know where it’s going to go, but it really could be worse or better. And so therefore rates could go a little bit higher or there’s a lot of room for rates to come down a little bit as well. But that uncertainty is a large part of why our forecast for rates is so high.

Dave:
All right. Thank you so much for explaining that. And I’m really interested in what you just said. I think that last part is super important because my assumption seems to be a bit wrong here was that people were going to take Trump at face value and really protect. But it does seem that the consensus is that a lot of these stated positions during the campaign and since taking office are more of a negotiated position. And it sounds like the street is sort of taking that and running with it that Trump is throwing out really dramatic tariffs in order to try and cut a deal that’s probably less dramatic. And so the market is pricing that in, but as Chen said, that means rates could get worse if Trump’s what he’s been saying actually does come to fruition. We’ve got more to unpack with Chen out specifically about what is happening on the supply side of things in the market. So don’t go anywhere. We’ll be right back.
Welcome back to On the Market. I’m Dave Meyer here with Chen Zhao from Redfin, and we’re talking about the latest research on homeowner trends. All right, Chen, so we’ve talked a lot about the future of rates. Obviously no one knows exactly what’s going to happen. We both feel there’s a lot of uncertainty. But I wanted to switch the conversation to some recent research that you and your team have been doing at Redfin. Most notably a survey I read about homeowners intended behavior and that a lot of homeowners are just saying that they’re never going to sell their home. And this seems particularly important in this locked in era where inventory is particularly low and a lot of people are wondering when that’s going to break and open back up. Can you tell us first just a little bit about the survey and what you found?

Chen:
So we surveyed a bunch of homeowners and what we found is that about 60% say that they don’t really have any plans to sell their home for at least 10 years.

Dave:
Okay.

Chen:
So of that one third is saying that they’re just never going to sell. And then another 27% say they wouldn’t consider selling for at least 10 years. And then the remaining portion about 24% would plan to sell in about five to 10 years, and about 15% say they would be willing to sell within the next five years. But the really striking thing here is that 60% are really saying it’s at least 10 years from now.

Dave:
And what do you make of that? Is that because of mortgage rates or is this a bigger behavioral preferences, societal change than just strictly financial?

Chen:
I think there are so many different things going on here. So I think there’s a demographic component to this, which is that in general, we know that there’s an increasing preference to age in place right now. So what we’re seeing in this survey is that the older homeowners are the ones who are more likely to say that they’re never going to sell. That’s 43% of baby boomers in the survey are saying that they’re never going to sell compared to just 34% of Gen X homeowners and only 28% of millennial or Gen Z homeowners. So there really is a very strong demographic component to this. There is also a second component, which is a lot of people moved recently during the pandemic.
And so we know that that pulled forward a lot of demand and hollows out demand for the next kind of set of years, and we’re still in that next set of years. So it’s not that surprising that a lot of people are saying, I just moved. I don’t need to move again. And then the third component, which I think is probably the most important, I would guess, is really financial, but it’s not just mortgage rates. I think it’s both the cost of homes but also mortgage rates. So it’s home prices and mortgage rates at the same time. So in our survey we asked homeowners why they wouldn’t want to sell, and 30% cited high home prices and 18% cited that they don’t want to give up their existing low mortgage rate. And the reason why I want to emphasize the high home prices is that one, about 40% of homeowners actually own their homes free and clear, so they don’t really need to finance anyway.
So really they’re just looking at, if I have to buy a new house, it’s going to be way more expensive. The second reason is that we just had this long discussion about mortgage rates. I don’t think the odds of mortgage rates coming down in the near term, medium term are really very good at all. I was saying about this new regime of low metabolism, but what can happen is that home prices can adjust in this new regime for a number of reasons, including just that rates are higher. There’s a lot of attention right now on just mortgage rates, mortgage rates, mortgage rates. But I think thinking about what the trajectory for prices is equally if not more important,

Dave:
I definitely want to come back to that about the price trajectory. Super important here, but just wanted to dig in on a couple of the demographic questions here. You said that baby boomers are the biggest group that said that they’re never going to sell at 43%. I’m sure you’ve heard this term, the silver tsunami before, where people have been predicting that at some point all of the baby boomers, what was the biggest generation in the United States were they’re all going to sell and some constricted period of time was going to flood the market with supply and it was going to cause home prices to crash. I’ve personally never really bought into that, but I’m curious if you think there is any chance of that happening. It seems that the survey does not support that idea of a silver tsunami. In fact, it probably supports the opposite is that we’re going to have constrained supply because of baby boomer activity.

Chen:
Yeah, I’m glad you never bought into it. I don’t buy into it either. Yeah, I just don’t think that there’s ever really a tsunami coming. I think what we’re looking at is really more so just like a trickle, right? It is a large generation. I think the trickle can sort of wax and wing over time, but it’s hard to pinpoint what would cause this giant flood to happen. What point in time would trigger all these baby boomers to sell at once? I don’t think that that’s going to happen. We know from multiple surveys that people have a very strong preference to remain in their own home, in their own community, and a lot of that is because they don’t like what their other options are. They don’t like the assisted living options. They don’t like the housing stock in their community because there’s nothing really that would suit their needs better than what they already have. So yes, certainly some folks will age out in some way because they pass away or because they are forced into some sort of assisted living community. But I just can’t pinpoint anything that would trigger an actual tsunami.

Dave:
Yeah, I totally agree. I think the whole thing has been just a little bit overblown, and I do wonder if some of this survey data is aspirational not to be morbid, but I think a lot of people want to age in place, but the realities of growing old sometimes will interfere and that some people will have to move into assisted living facilities or some other living arrangement. But I think the intent is really important here and that it’s going to take a lot for that to change. Stick around After this short break, we’ll explore the broader implication of Redfin’s report you won’t want to miss. Welcome back to on the market. Let’s jump back in. So let’s go back to what you said about price forecast. It’s too tempting to ask about because you’re basically saying rates are going to stay higher in your opinion. I tend to agree I have a hard time seeing what’s going to pull rates down really dramatically in the short to medium term. And it sounds like maybe you think that means prices are going to at least flatten or maybe even turn negative. Is that right?

Chen:
So yeah, so I want to be really careful what to say here. So what I would say is that over the course of the next year, our forecast is that home prices are going to rise about 4%.
So in the near term, we do think prices will continue rising because we do think that demand is outstripping supply. We are still kind of in this lot in situation. Over the longer term though, I think that the risk is to the downside for prices. And the reason why I think that is the case is simply because affordability metrics have just gotten completely out of whack. After the pandemic. First you saw the huge runup in prices, then you got the big runup in rates, and you’re not getting any relief on rates. So now whether you look at it as income to price or however you want to measure it, it’s just completely out of equilibrium. And so at some point it just feels like the dam has to break and you have to go back to what is an equilibrium that you have observed over long periods of time because people simply cannot afford homes at these prices.
So I think that’s one reason that I would cite. The second is actually just demographic. So we know that right now we’re going kind of that biggest part of the millennial generation in terms of the prime home buying age. So kind when the snake is swallowing like a mouse or something. It’s how you see it that big lump going through right now. But what follows after that is smaller generations. And then on top of that, we also know that we had a huge influx of immigration in the last few years. However, looking forward, everything points to lower immigration and not just because of the current administration’s policies, but because over even the longer horizon, if you look around the world, populations are kind of falling, birth rates are falling. So if you want to look over a really long horizon, where would the immigrants even be coming from is a question you have to start asking yourself. So if you’re looking over that kind of horizon, the demographic pressures really point to less housing demand, which is great in the sense that if you’re really worried about the housing shortage, which we know we have an acute housing shortage right now, that is good news. However, that does mean that the pressure on prices is really more to the downside than to the upside, especially if you’re still in an environment where rates are staying pretty high.

Dave:
Wow, that’s super interesting. Yeah, I have thought a lot about the demographic issues because yeah, the birth rate is going down and we will work through the bump in demographics through millennials over the next couple of years. And I don’t know if you have this information, but I’ve always kind of wondered if it would sort of reach some equilibrium because supply growth isn’t that great, and if it would sort of like the replacement rate of homes that become uninhabitable or just basically leave the total supply would sort of just counteract the demographic trend. But I’m curious if you have any thoughts on that.

Chen:
Yeah, I do think that you will see some of that for sure, but I also think that over the next few years it feels like there’s a strong push to deregulation and strong push towards policies that would promote more housing supply. That’s kind of generally what you see when you have Republican sweep of the federal government. So I feel like if we’re able to reduce the cost of construction, should still put some upward pressure on supply.

Dave:
And then for the next few years, you said you do still see demand outstripping supply, so prices like you said, could go up in the next few years. Is that just due to demographics rates are so high, but there’s a ton of millennials, gen Z, who want homes right now.

Chen:
Yeah, I mean especially over this coming year, you still have a lot of demographic tailwinds. You’re also benefiting from really the fact that people have a lot of wealth is asset prices are high. So you see the stock market is at record highs, crypto things, but also a lot of home buyers are also existing homeowners. And those high home prices also help that group as well.

Dave:
Got it. Okay. Is there anything else from this survey that you think our audience should know? There was a lot in there, but are there any takeaways or actionable tips that you have for how a potential purchaser might navigate this situation?

Chen:
One thing I would point out is that when you hear six out of 10, homeowners don’t intend to sell their homes for at least 10 years. First of all, I would say you pointed out what people intend and what they say they intend. And what they actually end up doing are sometimes two completely separate things.
And secondly, 15% say they plan to sell in five years or less. I want to think about that number in the context of another report that we did, which was that in, I think it’s like the first eight months of 20 24, 2 and a half percent of homes changed hands. That’s the turnover rate in housing. And that was a record low basically for all of the history that we observe. And so what I would say is that that 15% planning to sell in five years or less, first of all, I think could actually end up being higher because what people say and what they intend to do may actually not be the same thing. But also just that two point a 5% was really low, but the historical rate is more like three or 4%. So this is not actually how the math works, but if you kind of think of it in the back of the envelope sort of way times five years is actually not that far away from that 15%. So what I’m saying is that even though 15% selling their homes in the next five years sounds really low, that actually could mean that the lock-in effect is in fact easing. And we could see a real easing of the lock-in effect over the next five years. So that’s the takeaway that I would have to from them.

Dave:
All right. Well, this is really helpful, Chad. I mean, I think we hear a lot about demographics and how they support housing prices, at least in the short run, but the sort of long-term perspective is super helpful for real estate investors. It’s definitely given me a lot to think about in terms of how you want position assets. I personally don’t think it means real estate is no longer going to be a good asset class, but it does make you think that you have to be a bit more strategic about where you’re going to buy what you’re going to buy to find something that’s going to at least maintain its value over the long run.

Chen:
Yeah, no, I completely agree. And I think it’s important to remember that we’re talking overall national picture, kind of a national average, different pockets. You’re going to see different patterns potentially, especially in different geographies or different segments of the market.

Dave:
Yeah, definitely. So another reason why, to keep track of what’s going on in your market and listen to podcasts like this where we tell you what’s going on in different pockets of the country. Well, Jen, thank you so much for joining us again. It’s always a pleasure to have you here. We really appreciate it.

Chen:
Yeah, of course. Thanks so much for having me on.

Dave:
Thank you all for listening to this episode of On The Market. We’ll be back in a couple of days for another episode. We’ll see you then.