Tariff Talks Put the Housing Market on Ice

Dave:
Immediately we’re diving into the housing market headlines which are dominating the information. Our panel of consultants is right here, Kathy Fettke, Henry Washington and James Dainard, and we’re bringing collectively our takes on the important thing headlines that it’s best to learn about as an actual property investor. Welcome to On the Market. I’m Dave Meyer. Let’s bounce in. Kathy, how are you?

Kathy:
Nice, so blissful to see you.

Dave:
It’s good to see you as properly. James, the way you been? I’m doing good. Simply making an attempt to get some offers carried out. Oh, I’m certain you’re. It’s good to have the gang again collectively. Henry, I’d ask you ways properly you’re doing, however you advised us earlier than recording that you simply’re having a foul actual property day, so we wish to hear about it. We

Kathy:
Need to hear all

Dave:
About it.

Henry:
I’ve obtained the true property woes.

Dave:
I’m sorry man, it’s simply a kind of days. What occurred?

Henry:
Nicely, this previous week I used to be purported to promote a flip and it obtained pushed as a result of the property’s on a properly and I wanted to have the properly water examined. And so we had the properly water examined and it got here again that there was some contaminants within the properly water. I additionally spent $1,200 repairing this properly, so it’s in good working order and a part of the FHA tips was that they wanted to now exit and measure how far the properly is from the septic tank must be 100 toes away. Discovered as we speak that mine was not 100 toes away.

Kathy:
Oh no.

Henry:
So now I’ve to decommission the properly that I simply paid $1,200 to repair and I now have to use for a faucet into metropolis water. The faucet is throughout a busy avenue, double yellow line avenue. So I’ve to use for the faucet, wait to see if I get it,

Kathy:
And

Henry:
Then it’s going to price me between six to 10 grand.

Kathy:
Ouch.

Henry:
To faucet into metropolis water, so could possibly be dropping our purchaser.

Dave:
Oh my God. And the way lengthy is that going to take?

Henry:
Who is aware of? I’m at the very best of town. I’ve no clue.

Dave:
Oh my God, I’m sorry, man. That’s brutal.

James:
The digging up the road is the most costly half in that since you obtained to chop the road up. However what you wish to do although is apply for a price reduction as a result of you may get an exception quite a bit with loads of cities if it goes above a specific amount to the place they’ll allow you to transfer that properly as a substitute.

Henry:
Huh? Appears like I’m having a complete dialog with James after this podcast. Okay.

Dave:
Tell us what occurs as a result of I’m sorry to listen to this, Henry. That’s tough, nevertheless it seems like perhaps James has some options for you. All proper. We do should get to our foremost present as we speak, which was about headlines that each one of us are following. When you hearken to the present, you in all probability know the format. Every of us brings a headline that we’re following within the information and the group discusses it. Kathy, we’re going to begin with you as we speak. What’s the primary factor in your thoughts from the information?

Kathy:
Nicely, we knew that tariffs have been coming they usually’re right here they usually’re large ones they usually’re 25%, after which there’s been retaliation as a result of different nations don’t essentially like that. So it’s been large information so far as it truly has been enacted as a result of earlier than throughout the marketing campaign, I stored listening to individuals say, oh, he isn’t actually going to try this, however right here we’re. And so the influence is one thing we as buyers actually should be taking note of. How way more is that this going to price us? The brand new tariffs might improve builder prices anyplace from 7,500 to $10,000 per dwelling. So this may have an effect on dwelling patrons as properly if it doesn’t change. However proper now, that is the place we’re. And in addition my article is CNBC. Right here’s how terrorists will hit the US housing market. So the third level they make is the best influence to dwelling builders can be from lumber price will increase, that are anticipated to whole about $4,900 per dwelling on common. So these tariffs undoubtedly going to have an effect on dwelling builders and positively flippers the nationwide builders simply based mostly on the truth that they may purchase a lot and perhaps have already got loads of this in inventory. Maybe they received’t be as affected as the person who’s going to be paying for this.

Henry:
Right here we go once more, this covid when wooden went up and actually I had building prices double throughout covid, so hopefully it received’t be that impactful, however I’ve lived by this as soon as already.

Dave:
Nicely, we’ve already seen lumber costs go up 11% simply this month, so it’s already getting fairly vital. It’s nonetheless half of the place it was throughout covid, so let’s simply hold that on perspective. It might go up extra now as a result of it went up earlier than the tariffs have been truly enacted, however we’re not in covid territory simply but.

Kathy:
Yeah, and I imply the largest drawback with Covid was that you simply couldn’t even get the lumber. There was full scarcity. So I don’t know that that’s the difficulty. It’s simply dearer. So clearly individuals are anticipating that this may improve dwelling costs. Might this have extra patrons be targeted on current houses? Is that this good for flippers as a result of they perhaps can’t afford a brand new dwelling, they’re going to be going with an older one? Does this imply there’ll be extra demand for rental property as a result of that is priced out? Tens of hundreds extra individuals who can’t afford these elevated dwelling costs due to the tariffs? So quite a bit is in play. I’ve heard the president say that it’s short-term ache, so no person actually is aware of.

Dave:
And only for everybody listening, we’re recording this on March fifth, so if issues have modified, please forgive us. We’re commenting on what has occurred right here As of the fifth and yesterday, president Trump introduced and enacted the 25% tariffs on Mexico and Canada, a further 10% tariff on China, carry that as much as 20% simply as we speak we heard that there was a suspension on the tariffs particularly for cars, so it’s very a lot in flux. I feel for the needs of our dialog, we have to assume that these tariffs are principally going to remain as is, but when they modify, we’ll clearly replace our ideas on that sooner or later.

Henry:
Yeah, I feel it’s TBD on if that is truly going to boost new building dwelling costs as a result of single household dwelling gross sales are based mostly on what shoppers are prepared to pay, it might simply imply they’ll elevate the worth in the event that they wish to. It doesn’t imply somebody’s going to pay for it. So builders could possibly be consuming the associated fee on this as properly.

Dave:
Yeah, margin’s already down for builders.

James:
Lock your lumber costs now. That’s how lumber works. You may get a package deal, you’ll be able to lock the worth as we speak in case you assume it’s going up, lock in now. So in case you obtained any plans that you simply’re engaged on, submit ’em in, get your lumber locked in. It isn’t pleasing when your prices are floating that a lot throughout a construct

Kathy:
And mortgage charges have come down partially due to all this uncertainty and a few financial information that’s come out lately that was just a little extra unfavourable. So maybe the decrease mortgage charges will nonetheless permit the customer to have the ability to afford the brand new dwelling even when costs go up.

Dave:
I feel that’s type of the attention-grabbing factor that that is occurring in a time the place demand is softening just a little bit, particularly for brand new builds, we’re beginning to see decrease gross sales transaction quantity. It’s type of softening throughout the market, and so this might truly offset one another like the rise in building prices and the softness available in the market might wind up offsetting one another like Henry stated. All proper. Ought to I make you guys all guess in case you assume tariffs are going to stay round, what do you assume,

Henry:
Henry? Completely. I feel they may.

Dave:
Okay. Kathy, what do you assume?

Kathy:
Yeah, I truly assume so. I feel Trump is actually making an attempt to incentivize corporations to do enterprise right here within the us so yeah, it’s potential.

Dave:
James, what’s your batt?

James:
I feel it’s the artwork of the deal. I don’t assume they’re going to remain. He’s making an attempt to get what he needs and he’s coming in aggressive and I feel they’re going to alter up as a result of on the finish of the day, our financial system’s quite a bit stronger than most of these different ones they usually’re going to really feel it worse. That’s the underside line. And so I feel it’s simply bluffing personally, however I didn’t anticipate it to enter impact. Now

Dave:
I’m going to hedge. I feel there can be tariffs, however there’ll be lower than they’re proper now. There’ll be some type of deal the place sure issues are excluded or tariffs on sure key issues. I personally assume cars are going to remain excluded or oil or lumber, issues like this. Sure actually necessary issues will in all probability get excluded from Mexico and Canada. I anticipate the 20% on China to stay. That’s my guess as of proper now. However we’ll see. And I’m certain everybody within the feedback by the point this come out will inform us we’re mistaken as a result of one thing can have modified by now, however that’s simply our guess as of now. All proper. Nicely let’s transfer on to James’ article as a result of James, I perceive you’re bringing an article that talks about building prices and the way they’ve been altering even impartial of the modifications which are occurring in tariffs.

James:
This text is for building professionals.com and it reveals the development business price insights for quarter considered one of 2025. And so what this text talks in about, it had some attention-grabbing data. So the labor fee costs, which goes to be your normal labor for challenge managers and labor wages elevated 4.1% in 2024,

Dave:
4.1%. That’s type of like common wage progress during the last 12 months, in order that’s probably not greater than what most labor goes up not less than. In order that’s type of encouraging, proper?

James:
Yeah, I believed so too. After which I began trying into what the common labor wage improve in 2022 was after we had loads of inflation and we noticed loads of price will increase in building, and the regarding factor is the common improve was solely 3.4% in 2022.

Dave:
That simply sounds mistaken.

James:
That’s what I believed. However that’s based on the RS means 2022 building price report

Dave:
Sounds credible.

James:
The article additionally talks concerning the materials prices. These are the 2 greatest elements. How a lot did it price to put in it? What’s the fabric prices? They reported the 8.7 common materials prices improve in 2024 and that this 12 months they’re projecting at 3.1% improve. It’s type of unusual that I’m seeing these numbers. I’m not feeling ’em as we speak. Sure objects, we’re undoubtedly seeing price will increase on, particularly on mini cut up programs, HVAC programs which are shipped in from abroad. If we see these tariffs hit that that would proceed to develop. However general, they’re considering that 2025 goes to have some fairly regular will increase on building prices.

Kathy:
I imply, in case you’re simply going to sum up what all this implies, it in all probability means larger dwelling prices at a time when dwelling costs are already so excessive and the one saving grace we might have is mortgage charges coming down to assist save that purchaser.

Dave:
I feel one of many different potential impacts of that is that there’s simply going to be much less building. We’d like extra building within the US usually talking, and there may be a slowdown in single household houses. There’s already been a slowdown in industrial for certain, however we’d see a corresponding decelerate in residential if it’s simply dearer to construct, particularly in a delicate market. We’d simply see decrease begins for the foreseeable future, which these items transfer slowly however might have a long-term influence on housing costs.

James:
Nicely, yeah, and that’s what we’re seeing is it’s probably not growing the worth. In 2024, there was 3.9% much less housing begins than the 12 months earlier than, and I actually assume it’s going to be even worse in 2025 as a result of loads of these have been backlogged permits that have been nonetheless in play in 2023 and we’re probably not seeing housing go up as a lot. It’s actually that builders have gotten much less worthwhile as a result of they’re getting squeezed on all sides. So I feel the true influence isn’t going to be that the housing price goes to maintain going up except charges fall, it’s going to be individuals promoting land and promoting their property to builders that they have been getting paid premiums on are going to should take quite a bit much less for it to really occur.

Dave:
All proper. Nicely, Kathy, you talked about the magic stock phrase, Henry. I feel your story has to do with this. We do should take a fast break, however we’ll hear Henry’s story after we come again. Welcome again to On the Market. I’m right here with James, Henry and Kathy speaking about newest tendencies and information tales in the true property investing universe. Henry, it’s your flip. What story did you carry

Henry:
For us as we speak? I actually simply introduced a market pattern replace from realtor com, so it’s their February, 2025. What I like about this text is it type of places numbers to a few of the issues that individuals are seeing and feeling and listening to in the true property world proper now. Individuals are listening to that issues are slowing down, however what does that imply? And so on this market pattern report, one of many issues that calls out is the variety of houses actively on the market does proceed to be larger in contrast with final 12 months. It’s rising by 27.5% and that’s 16 straight months of progress. It additionally talks concerning the variety of whole unsold houses, so that features houses which are underneath contract have elevated by 18.2% in comparison with final 12 months, and it says that sellers who listed their houses at higher charges than final 12 months with newly itemizing houses are growing 4.2% 12 months over 12 months. In order that’s a bit slower. It additionally talks about dwelling costs. So the median dwelling worth on the market this February was down 0.8% in contrast with final 12 months at $412,000. However it does have a caveat right here that extra small houses are being listed this 12 months, which has helped lower that checklist worth relative to final 12 months. Oh,

Dave:
Okay.

Henry:
Properties spent 66 days available on the market, and that is 5 days greater than the identical month final 12 months, so time on market has elevated as properly. Now there’s a chart that exhibits lively itemizing depend February, 2025. The pattern line is type of in the course of the graph at round 847,000 listings. So submit pandemic years, we’re on the highest level for lively itemizing depend that we’ve got seen, and it does the identical factor for whole itemizing depend. So what number of whole listings? It’s virtually equivalent. We’re proper within the center. We’re on the highest. We’ve been submit pandemic, however we’re not close to pre pandemic ranges but. I feel all this implies is that issues are slowing down, it’s taking longer to promote houses, they’re sitting longer available on the market, stock is creeping up, however they don’t seem to be close to pre pandemic ranges but. So issues are gradual and regular.
Issues are nonetheless promoting, it’s simply taking longer for issues to promote, and also you do have extra competitors available on the market, and we’re seeing precisely that right here in my native market. However once more, that is nationwide numbers. You might want to look very regionally. It does say that 15 Southern and western metros have extra stock than pre pandemic ranges proper now. So these are very market particular information factors. You might want to take note of your native market to know find out how to modify your underwriting so that you simply’re not dropping all of your income to the size of time it takes for properties to promote.

Dave:
I have a look at the market, I comply with loads of markets. It does seem to be every part is slowing down. We haven’t gotten to the purpose the place most markets are unfavourable, nevertheless it does simply really feel prefer it’s trending that method not less than to flatness. To me, it’ll be attention-grabbing to see if decrease charges reverse that pattern. Client sentiment is down, financial confidence appears to be down. And so it looks like these are going to be type of competing curiosity, like decrease rates of interest versus financial softness. Which one wins out within the housing market? Kathy, what do you assume occurs right here?

Kathy:
Nicely, we’ve been ready to see, proper? We’ve been ready for charges to return all the way down to see if this extra stock will get purchased up and we’ll know in subsequent month’s report for certain. However there’s loads of uncertainty. Definitely we talked about it earlier than, however loads of job tons is actually within the authorities sector. There was loads of hiring throughout the Biden administration and now loads of these jobs are going to be gone, and that affected the true property market then and it’ll have an effect on it now. However on the identical time, Barbara Corcoran’s been saying, if charges go down, individuals are going to get again in and begin shopping for. It actually comes all the way down to affordability. When individuals are shopping for their major, can they afford it, they usually don’t fear a lot about every part else that’s occurring, they only wish to ensure have they got a job and might they afford the home that they’d like to purchase for his or her household? And if they’ll, then we’ll actually see that within the numbers subsequent month.

Dave:
Yeah. I’m curious so many people who find themselves all the time saying, oh, I’ll purchase when charges go down. Nicely, charges are happening, so are you’re going to purchase, proper? It’ll be attention-grabbing.

Kathy:
I imply, it’s the right time. It’s the right time to be shopping for. When you’ve obtained extra stock, you’ll be able to negotiate an excellent deal and get a greater rate of interest. So let’s get the phrase on the market, man. When you’ve been ready, that is your time, that is the time to get in there.

Henry:
Completely. Each single one of many properties that we’re at the moment promoting that’s at the moment underneath contract, we’ve got given concessions. We’ve given them greater than we’d sometimes give them prior to now. That’s as a result of there’s an absence of eyeballs on the market, which means if I lose this purchaser, we don’t know when the following one’s going to return. And they also’ve obtained some negotiating energy. And so in case you’re seeking to purchase like that is the time to go do it, I’m giving closing prices on all 4 of ’em proper now, plus another issues

James:
With Seattle, the rationale it’s doing properly, despite the fact that we’ve got just a little bit extra stock based on Zander’s new dwelling lot, Seattle is 23% undersupplied of housing as we speak with even the present lively stock ranges. And people are issues we wish to take into consideration as buyers. Like, okay, sure, stock is growing days on, markets are growing just a little bit, however there’s nonetheless an enormous demand. Their showings have dramatically jumped. Even with all this tariff speak, which normally freezes our market, we’re nonetheless seeing loads of our bodies come by.

Dave:
Yeah, I imply that’s excellent news, James. I feel we speak about it quite a bit how markets are altering. I feel we’re going to see even increasingly of that, notably round job markets. Markets the place individuals really feel safe of their jobs I feel are going to be doing simply nice. And as Kathy stated, be ok with your job and you’ll afford it. You’re in all probability going to purchase a home in case you’re worrying about your job, even in case you afford it. That’s type of like a grey space, and we type of should see how individuals are feeling about their monetary safety, however that’s why it’s so necessary to simply hold observe very carefully of what’s occurring in your particular person market.

Kathy:
I feel one factor to notice additionally in Henry’s article available on the market tendencies is that the median worth of houses on the market in February was down 0.8% from final 12 months at 412,000. However then there’s a sentence after that that’s actually necessary to learn. It says, nevertheless, extra small houses are being listed this 12 months, which decreases the median checklist worth relative to final 12 months. The median checklist worth per sq. foot, which controls for dimension grew by 1.2%, indicating that dwelling values proceed to extend. So whenever you hear information, there’s all the time just a little bit extra to it and that median dwelling worth. I bear in mind throughout the foreclosures disaster, it was like individuals actually thought costs have been crashing, which they have been, however every part that was available on the market was a foreclosures,

James:
Proper? And there’s an absence of gross sales. So one costly sale on the month can actually change the median dwelling worth round. I really feel like that information offers far more margin of error now in it.

Dave:
Nicely, in case you all listening, wish to get essentially the most dependable information on dwelling costs, there’s one thing known as the Case Schiller Index. That is getting actual nerdy, however they mainly observe identical dwelling gross sales over time, so it accounts for and type of adjusts for the amount of gross sales and the dimensions of issues. And so in case you have a look at that, dwelling costs have been undoubtedly up during the last 12 months. They’re slowing down, they’re flat over the previous couple of months based on Case Shiller. However Kathy and James are completely proper that in case you have a look at Realtor or Zillow, their methodology is just a little bit totally different. It’s just a little extra unstable case. Shiller is the very best place to look if you wish to actually perceive the true motion of dwelling costs.

Henry:
Do you may have a month-to-month finest buyer membership with them?

Dave:
I’ve their charts tattooed on my arm. I do it each month. It simply reference it like a quarterback. Alright. All proper. Nicely thanks for bringing that story, Henry. I’ve a extremely attention-grabbing one which I feel goes to shock lots of people. We do should take a fast break, however I’ll share it after we come again. Welcome again to On the Market. I’m right here with Henry, James and Kathy speaking and information and tendencies within the housing market. We’ve heard from all three of our panelists, I’ve one to share, which is one thing that actually is worrying me just a little bit, however there was an article from the Mortgage Bankers Affiliation that confirmed that FHA mortgage delinquencies are on the rise. Now, I’ve for years been saying I didn’t assume the housing market was going to crash. And the primary motive I’ve been saying that’s as a result of individuals are paying their mortgages and except individuals cease paying their mortgages, it’s fairly exhausting for the market to crash as a result of individuals don’t voluntarily promote their houses at decrease costs.
There must be one thing known as pressured promoting. They solely pressured get pressured to promote in the event that they’re going to get foreclosed on. And I wish to caveat this and ensure everybody understands the entire delinquency fee for individuals who aren’t paying their mortgage for standard loans is definitely very low. It’s extraordinarily low. It went down 12 months over 12 months, however there’s a subsection of the market simply FHA loans, which are usually decrease earnings households and VA loans. These delinquency charges are literally beginning to go up. And whereas I feel we’re nonetheless a good distance away from panicking about something like this, it’s a pattern that personally I feel is actually necessary to take a look at, notably in markets or pockets of the nation the place there are excessive ranges of FHA or VA loans. So anytime I see mortgage misery, I fear personally, however I’m curious in case you guys are involved about it otherwise you assume it’s type of only a blip.

Kathy:
I don’t have the article in entrance of me, however I did report on a narrative lately the place it has one thing to do with the foreclosures moratorium for VA loans that was up. So there was a rise there.

Henry:
I

Kathy:
Shouldn’t have that information, however there could possibly be that.

Henry:
I additionally assume there’s going to be, whenever you’re speaking about FHA in va, there’s going to be a subset of people that reap the benefits of these applications who in all probability can solely afford the house due to the low down cost and low price of entry into the house. And I feel what occurs is, as a result of I lately talked to a vendor on this place, they get into the loans after which 12 months over 12 months that mortgage cost goes up as insurance coverage goes up and taxes go up. And one particular person was telling me that they purchased their dwelling and the rationale that they’re promoting it now a 12 months later is as a result of their mortgage cost has gone up $350, which is substantial in case you might barely afford the home within the first place and also you weren’t placing down any cash. So I feel the individuals on the affordability cusp who’re utilizing these loans they usually’re barely with the ability to make their mortgage cost, are going to search out themselves in a few of these robust positions as a result of some individuals are slightly below the impression that your mortgage cost is fastened at that worth that you simply get whenever you signal the paperwork on day one, and it by no means modifications.
And that’s simply not the case.

Dave:
Nicely, your principal and curiosity are sometimes, however not your insurance coverage and taxes. These can undoubtedly go up.

James:
I feel Henry’s proper, it’s that gradual squeeze on costly issues, and that’s getting individuals, as a result of after we promote loads of homes, I can individuals stretch their DTIs they usually’re barely getting in and that 300 bucks makes an enormous distinction. And I feel that’s what you’re seeing throughout the nation is it’s that gradual squeeze. I imply, even subprime auto loans defaults have been up 6.4% defaults on auto loans are actually growing. Bank cards are going up too. Bank cards, dwelling insurance coverage is an actual price used to not be. It makes large, large distinction in your month-to-month cost.

Dave:
Yeah, completely. I feel I’ve talked about this a number of occasions, nevertheless it was virtually a 12 months in the past now, however we had somebody come on who stated that in areas of Louisiana and Alabama, locations on the Gulf Coast, taxes and insurance coverage are actually as a lot as principal and curiosity, which is simply insane. You’re mainly paying your mortgage twice

Henry:
Insane. It’s

Dave:
Loopy. Yeah. So it’s not all over the place, however clearly that’s going to have a big impact on individuals. And I don’t know, I hope that is only a temporary factor and both fee reduction or hopefully discount in inflation sooner or later will enhance this. However like I stated, anytime I see bother within the debt market, it worries me. So the shift in pattern is one thing to keep watch over. All proper, that’s what we obtained for you all as we speak. Ought to all of us simply dangle round and wait and hearken to James and Henry speak about Henry’s woes, however actually sorry to listen to that, Henry. I hope you two can provide you with some options that sadly is a part of the enterprise, nevertheless it sounds such as you had a foul couple of days,

Henry:
A part of the sport.

Kathy:
By no means a uninteresting second.

Dave:
Nicely, that’s why it’s good to have associates within the business and to have podcasts like this the place you’ll be able to commiserate and perceive that it’s not simply you. Everybody goes by these items in some unspecified time in the future or one other. Nicely, Kathy, James, Henry, thanks a lot for being right here as we speak and thanks all a lot for listening to this episode available on the market. We’ll see you quickly.