Tariff Talks Put the Housing Market on Ice: Prices Down, Delinquencies Up

Dave:
Today we’re diving into the housing market headlines that are dominating the news. Our panel of experts is here, Kathy Fettke, Henry Washington and James Dainard, and we’re bringing together our takes on the key headlines that you should know about as a real estate investor. Welcome to On the Market. I’m Dave Meyer. Let’s jump in. Kathy, how are you?

Kathy:
Great, so happy to see you.

Dave:
It’s good to see you as well. James, how you been? I’m doing good. Just trying to get some deals done. Oh, I’m sure you are. It’s good to have the gang back together. Henry, I would ask you how well you’re doing, but you told us before recording that you’re having a bad real estate day, so we want to hear about it. We

Kathy:
Want to hear all

Dave:
About it.

Henry:
I’ve got the real estate woes.

Dave:
I’m sorry man, it’s just one of those days. What happened?

Henry:
Well, this past week I was supposed to sell a flip and it got pushed because the property’s on a well and I needed to have the well water tested. And so we had the well water tested and it came back that there was some contaminants in the well water. I also spent $1,200 repairing this well, so it’s in good working order and part of the FHA guidelines was that they needed to now go out and measure how far the well is from the septic tank needs to be a hundred feet away. Found out today that mine was not a hundred feet away.

Kathy:
Oh no.

Henry:
So now I have to decommission the well that I just paid $1,200 to fix and I now have to apply for a tap into city water. The tap is across a busy street, double yellow line street. So I have to apply for the tap, wait to see if I get it,

Kathy:
And

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

Kathy:
Ouch.

Henry:
To tap into city water, so could be losing our buyer.

Dave:
Oh my God. And how long is that going to take?

Henry:
Who knows? I’m at the best of the city. I have no clue.

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

James:
The digging up the street is the most expensive part in that because you got to cut the street up. But what you want to do though is apply for a cost relief because you can get an exception a lot with a lot of cities if it goes above a certain amount to where they’ll let you move that well instead.

Henry:
Huh? Sounds like I’m having a whole conversation with James after this podcast. Okay.

Dave:
Let us know what happens because I’m sorry to hear this, Henry. That is rough, but it sounds like maybe James has some solutions for you. All right. We do have to get to our main show today, which was about headlines that all of us are following. If you listen to the show, you probably know the format. Each of us brings a headline that we are following in the news and the group discusses it. Kathy, we’re going to start with you today. What is the number one thing on your mind from the news?

Kathy:
Well, we knew that tariffs were coming and they’re here and they’re big ones and they’re 25%, and then there’s been retaliation because other countries don’t necessarily like that. So it’s been big news as far as it actually has been enacted because before during the campaign, I kept hearing people say, oh, he is not really going to do that, but here we are. And so the impact is something we as investors really need to be paying attention to. How much more is this going to cost us? The new tariffs could increase builder costs anywhere from 7,500 to $10,000 per home. So this will affect home buyers as well if it doesn’t change. But right now, this is where we are. And also my article is CNBC. Here’s how terrorists will hit the US housing market. So the third point they make is the greatest impact to home builders will be from lumber cost increases, which are expected to total about $4,900 per home on average. So these tariffs definitely going to affect home builders and certainly flippers the national builders just based on the fact that they could buy so much and maybe already have a lot of this in stock. Perhaps they won’t be as affected as the individual who’s going to be paying for this.

Henry:
Here we go again, this covid when wood went up and literally I had construction costs double during covid, so hopefully it won’t be that impactful, but I’ve lived through this once already.

Dave:
Well, we’ve already seen lumber prices go up 11% just this month, so it’s already getting pretty significant. It’s still half of where it was during covid, so let’s just keep that on perspective. It could go up more now because it went up before the tariffs were actually enacted, but we’re not in covid territory just yet.

Kathy:
Yeah, and I mean the biggest problem with Covid was that you couldn’t even get the lumber. There was complete shortage. So I don’t know that that’s the issue. It’s just more expensive. So clearly people are expecting that this will increase home prices. Could this have more buyers be focused on existing homes? Is this good for flippers because they maybe can’t afford a new home, they’re going to be going with an older one? Does this mean there’ll be more demand for rental property because this is priced out? Tens of thousands more people who cannot afford those increased home prices because of the tariffs? So a lot is in play. I’ve heard the president say that it’s temporary pain, so nobody really knows.

Dave:
And just for everyone listening, we are recording this on March 5th, so if things have changed, please forgive us. We are commenting on what has happened here As of the fifth and yesterday, president Trump announced and enacted the 25% tariffs on Mexico and Canada, an additional 10% tariff on China, bring that up to 20% just today we heard that there was a suspension on the tariffs specifically for automobiles, so it’s very much in flux. I think for the purposes of our conversation, we need to assume that these tariffs are mostly going to stay as is, but if they change, we’ll obviously update our thoughts on that in the future.

Henry:
Yeah, I think it’s TBD on if this is actually going to raise new construction home prices because single family home sales are based on what consumers are willing to pay, it could just mean they can raise the price if they want to. It doesn’t mean someone’s going to pay for it. So builders could be eating the cost on this as well.

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

James:
Lock your lumber prices now. That’s how lumber works. You can get a package, you can lock the price today if you think it’s going up, lock in now. So if you got any plans that you’re working on, submit ’em in, get your lumber locked in. It is not enjoyable when your costs are floating that much during a build

Kathy:
And mortgage rates have come down in part because of all this uncertainty and some economic news that’s come out recently that was a little more negative. So perhaps the lower mortgage rates will still allow the buyer to be able to afford the new home even if prices go up.

Dave:
I think that is kind of the interesting thing that this is happening in a time where demand is softening a little bit, especially for new builds, we’re starting to see lower sales transaction volume. It’s kind of softening across the market, and so this could actually offset each other like the increase in construction costs and the softness in the market could wind up offsetting each other like Henry said. All right. Should I make you guys all guess if you think tariffs are going to stick around, what do you think,

Henry:
Henry? Absolutely. I think they will.

Dave:
Okay. Kathy, what do you think?

Kathy:
Yeah, I actually think so. I think Trump is really trying to incentivize companies to do business here in the us so yeah, it’s possible.

Dave:
James, what’s your batt?

James:
I think it’s the art of the deal. I don’t think they’re going to stay. He’s trying to get what he wants and he’s coming in aggressive and I think they’re going to change up because at the end of the day, our economy’s a lot stronger than most of those other ones and they’re going to feel it worse. That’s the bottom line. And so I think it’s just bluffing personally, but I did not expect it to go into effect. Now

Dave:
I’m going to hedge. I think there will be tariffs, but there’ll be less than they are right now. There’ll be some sort of deal where certain things are excluded or tariffs on certain key things. I personally think automobiles are going to stay excluded or oil or lumber, things like this. Certain really important things will probably get excluded from Mexico and Canada. I expect the 20% on China to remain. That’s my guess as of right now. But we’ll see. And I’m sure everyone in the comments by the time this come out will tell us we’re wrong because something will have changed by now, but that’s just our guess as of now. All right. Well let’s move on to James’ article because James, I understand you’re bringing an article that talks about construction costs and how they’ve been changing even independent of the changes that are going on in tariffs.

James:
This article is for construction pros.com and it reveals the construction industry cost insights for quarter one of 2025. And so what this article talks in about, it had some interesting information. So the labor rate charges, which is going to be your general labor for project managers and labor wages increased 4.1% in 2024,

Dave:
4.1%. That’s kind of like average wage growth over the last year, so that’s not really more than what most labor is going up at least. So that’s kind of encouraging, right?

James:
Yeah, I thought so too. And then I started looking into what the average labor wage increase in 2022 was when we had a lot of inflation and we saw a lot of cost increases in construction, and the concerning thing is the average increase was only 3.4% in 2022.

Dave:
That just sounds wrong.

James:
That’s what I thought. But that’s according to the RS means 2022 construction cost report

Dave:
Sounds credible.

James:
The article also talks about the material costs. Those are the two biggest factors. How much did it cost to install it? What’s the material costs? They reported the 8.7 average material costs increase in 2024 and that this year they’re projecting at 3.1% increase. It is kind of strange that I’m seeing these numbers. I’m not feeling ’em today. Certain items, we’re definitely seeing cost increases on, especially on mini split systems, HVAC systems that are shipped in from overseas. If we see these tariffs hit that that could continue to grow. But overall, they’re thinking that 2025 is going to have some pretty steady increases on construction costs.

Kathy:
I mean, if you’re just going to sum up what all this means, it probably means higher home costs at a time when home prices are already so high and the only saving grace we may have is mortgage rates coming down to help save that buyer.

Dave:
I think one of the other potential impacts of this is that there’s just going to be less construction. We need more construction in the US generally speaking, and there might be a slowdown in single family homes. There’s already been a slowdown in commercial for sure, but we might see a corresponding slow down in residential if it’s just more expensive to build, especially in a soft market. We might just see lower starts for the foreseeable future, which these things move slowly but could have a long-term impact on housing prices.

James:
Well, yeah, and that’s what we are seeing is it’s not really increasing the price. In 2024, there was 3.9% less housing starts than the year before, and I honestly think it’s going to be even worse in 2025 because a lot of those were backlogged permits that were still in play in 2023 and we’re not really seeing housing go up as much. It’s really that builders are becoming less profitable because they’re getting squeezed on all sides. So I think the real impact isn’t going to be that the housing cost is going to keep going up unless rates fall, it’s going to be people selling land and selling their property to builders that they were getting paid premiums on are going to have to take a lot less for it to actually happen.

Dave:
All right. Well, Kathy, you mentioned the magic inventory word, Henry. I think your story has to do with this. We do have to take a quick break, but we’ll hear Henry’s story when we come back. Welcome back to On the Market. I’m here with James, Henry and Kathy talking about latest trends and news stories in the real estate investing universe. Henry, it is your turn. What story did you bring

Henry:
For us today? I really just brought a market trend update from realtor com, so it’s their February, 2025. What I like about this article is it kind of puts numbers to some of the things that people are seeing and feeling and hearing in the real estate world right now. People are hearing that things are slowing down, but what does that mean? And so in this market trend report, one of the things that calls out is the number of homes actively for sale does continue to be higher compared with last year. It’s growing by 27.5% and that’s 16 straight months of growth. It also talks about the number of total unsold homes, so that includes homes that are under contract have increased by 18.2% compared to last year, and it says that sellers who listed their homes at greater rates than last year with newly listing homes are increasing 4.2% year over year. So that’s a bit slower. It also talks about home prices. So the median home price for sale this February was down 0.8% compared with last year at $412,000. But it does have a caveat here that more small homes are being listed this year, which has helped decrease that list price relative to last year. Oh,

Dave:
Okay.

Henry:
Homes spent 66 days on the market, and this is five days more than the same month last year, so time on market has increased as well. Now there’s a chart that shows active listing count February, 2025. The trend line is kind of in the middle of the graph at around 847,000 listings. So post pandemic years, we are at the highest point for active listing count that we have seen, and it does the same thing for total listing count. So how many total listings? It’s almost identical. We’re right in the middle. We’re at the highest. We’ve been post pandemic, but we’re not near pre pandemic levels yet. I think all this means is that things are slowing down, it’s taking longer to sell homes, they are sitting longer on the market, inventory is creeping up, but they are not near pre pandemic levels yet. So things are slow and steady.
Things are still selling, it’s just taking longer for things to sell, and you do have more competition on the market, and we are seeing exactly that here in my local market. But again, this is national numbers. You need to look very locally. It does say that 15 Southern and western metros have more inventory than pre pandemic levels right now. So these are very market specific data points. You need to pay attention to your local market to understand how to adjust your underwriting so that you’re not losing all your profits to the length of time it takes for properties to sell.

Dave:
I look at the market, I follow a lot of markets. It does seem like everything is slowing down. We haven’t gotten to the point where most markets are negative, but it does just feel like it’s trending that way at least to flatness. To me, it’ll be interesting to see if lower rates reverse that trend. Consumer sentiment is down, economic confidence seems to be down. And so it seems like those are going to be sort of competing interest, like lower interest rates versus economic softness. Which one wins out in the housing market? Kathy, what do you think happens here?

Kathy:
Well, we’ve been waiting to see, right? We’ve been waiting for rates to come down to see if this excess inventory will get bought up and we’ll know in next month’s report for sure. But there is a lot of uncertainty. Certainly we talked about it before, but a lot of job lots is certainly in the government sector. There was a lot of hiring during the Biden administration and now a lot of those jobs are going to be gone, and that affected the real estate market then and it will affect it now. But at the same time, Barbara Corcoran’s been saying, if rates go down, people are going to get back in and start buying. It really comes down to affordability. When people are buying their primary, can they afford it, and they don’t worry so much about everything else that’s going on, they just want to make sure do they have a job and can they afford the house that they’d like to buy for their family? And if they can, then we’ll certainly see that in the numbers next month.

Dave:
Yeah. I’m curious so many people who are always saying, oh, I’ll buy when rates go down. Well, rates are going down, so are you’re going to buy, right? It’ll be interesting.

Kathy:
I mean, it’s the perfect time. It’s the perfect time to be buying. If you’ve got more inventory, you can negotiate a good deal and get a better interest rate. So let’s get the word out there, man. If you’ve been waiting, this is your time, this is the time to get in there.

Henry:
Absolutely. Every single one of the properties that we are currently selling that is currently under contract, we have given concessions. We have given them more than we would typically give them in the past. That’s because there’s a lack of eyeballs out there, meaning if I lose this buyer, we don’t know when the next one’s going to come. And so they’ve got some negotiating power. And so if you’re looking to buy like this is the time to go do it, I’m giving closing costs on all four of ’em right now, plus some other things

James:
With Seattle, the reason it’s doing well, even though we have a little bit more inventory according to Zander’s new home lot, Seattle is 23% undersupplied of housing today with even the current active inventory levels. And those are things we want to think about as investors. Like, okay, yes, inventory is increasing days on, markets are increasing a little bit, but there’s still a massive demand. Their showings have dramatically jumped. Even with all this tariff talk, which usually freezes our market, we’re still seeing a lot of bodies come through.

Dave:
Yeah, I mean that’s good news, James. I think we talk about it a lot how markets are changing. I think we’re going to see even more and more of that, particularly around job markets. Markets where people feel secure in their jobs I think are going to be doing just fine. And as Kathy said, feel good about your job and you can afford it. You’re probably going to buy a house if you’re worrying about your job, even if you afford it. That’s sort of like a gray area, and we kind of have to see how people are feeling about their financial security, but that’s why it’s so important to just keep track very closely of what’s going on in your individual market.

Kathy:
I think one thing to note also in Henry’s article on the market trends is that the median price of homes for sale in February was down 0.8% from last year at 412,000. But then there’s a sentence after that that’s really important to read. It says, however, more small homes are being listed this year, which decreases the median list price relative to last year. The median list price per square foot, which controls for size grew by 1.2%, indicating that home values continue to increase. So when you hear data, there’s always a little bit more to it and that median home price. I remember during the foreclosure crisis, it was like people really thought prices were crashing, which they were, but everything that was on the market was a foreclosure,

James:
Right? And there’s a lack of sales. So one expensive sale on the month can really change the median home price around. I feel like that data gives way more margin of error now in it.

Dave:
Well, if you all listening, want to get the most reliable data on home prices, there’s something called the Case Schiller Index. This is getting real nerdy, but they basically track same home sales over time, so it accounts for and sort of adjusts for the quantity of sales and the size of things. And so if you look at that, home prices were definitely up over the last 12 months. They’re slowing down, they’re flat over the last few months according to Case Shiller. But Kathy and James are absolutely right that if you look at Realtor or Zillow, their methodology is a little bit different. It’s a little more volatile case. Shiller is the best place to look if you want to really understand the true movement of home prices.

Henry:
Do you have a monthly best customer membership with them?

Dave:
I have their charts tattooed on my arm. I do it every month. It just reference it like a quarterback. Alright. All right. Well thank you for bringing that story, Henry. I have a really interesting one that I think is going to surprise a lot of people. We do have to take a quick break, but I’ll share it when we come back. Welcome back to On the Market. I’m here with Henry, James and Kathy talking and news and trends in the housing market. We’ve heard from all three of our panelists, I have one to share, which is something that honestly is worrying me a little bit, but there was an article from the Mortgage Bankers Association that showed that FHA mortgage delinquencies are on the rise. Now, I have for years been saying I didn’t think the housing market was going to crash. And the main reason I’ve been saying that is because people are paying their mortgages and unless people stop paying their mortgages, it’s pretty hard for the market to crash because people don’t voluntarily sell their homes at lower prices.
There has to be something called forced selling. They only forced get forced to sell if they’re going to get foreclosed on. And I want to caveat this and make sure everyone understands the total delinquency rate for people who aren’t paying their mortgage for conventional loans is actually very low. It’s extremely low. It went down year over year, but there’s a subsection of the market just FHA loans, which tend to be lower income households and VA loans. Those delinquency rates are actually starting to go up. And while I think we’re still a long way away from panicking about anything like this, it’s a trend that personally I think is really important to look at, particularly in markets or pockets of the country where there are high levels of FHA or VA loans. So anytime I see loan distress, I worry personally, but I’m curious if you guys are concerned about it or you think it’s kind of just a blip.

Kathy:
I don’t have the article in front of me, but I did report on a story recently where it has something to do with the foreclosure moratorium for VA loans that was up. So there was an increase there.

Henry:
I

Kathy:
Do not have that data, but there could be that.

Henry:
I also think there’s going to be, when you’re talking about FHA in va, there’s going to be a subset of people who take advantage of those programs who probably can only afford the home because of the low down payment and low cost of entry into the home. And I think what happens is, because I recently talked to a seller in this position, they get into the loans and then year over year that mortgage payment goes up as insurance goes up and taxes go up. And one person was telling me that they bought their home and the reason that they’re selling it now a year later is because their mortgage payment has gone up $350, which is substantial if you could barely afford the house in the first place and you weren’t putting down any money. So I think the people on the affordability cusp who are using these loans and they’re barely being able to make their mortgage payment, are going to find themselves in some of these tough positions because some people are just under the impression that your mortgage payment is fixed at that price that you get when you sign the documents on day one, and it never changes.
And that’s just not the case.

Dave:
Well, your principal and interest are often, but not your insurance and taxes. Those can definitely go up.

James:
I think Henry’s right, it’s that slow squeeze on expensive things, and that’s getting people, because when we sell a lot of houses, I can people stretch their DTIs and they’re barely getting in and that 300 bucks makes a big difference. And I think that’s what you’re seeing across the nation is it’s that slow squeeze. I mean, even subprime auto loans defaults were up 6.4% defaults on auto loans are now increasing. Credit cards are going up too. Credit cards, home insurance is a real cost used to not be. It makes big, big difference in your monthly payment.

Dave:
Yeah, absolutely. I think I’ve mentioned this a few times, but it was almost a year ago now, but we had someone come on who said that in areas of Louisiana and Alabama, places on the Gulf Coast, taxes and insurance are now as much as principal and interest, which is just insane. You’re basically paying your mortgage twice

Henry:
Insane. It’s

Dave:
Crazy. Yeah. So it’s not everywhere, but obviously that’s going to have a huge impact on people. And I don’t know, I hope this is just a brief thing and either rate relief or hopefully reduction in inflation in the future will improve this. But like I said, anytime I see trouble in the debt market, it worries me. So the shift in trend is something to keep an eye on. All right, that’s what we got for you all today. Should we all just hang around and wait and listen to James and Henry talk about Henry’s woes, but really sorry to hear that, Henry. I hope you two can come up with some solutions that unfortunately is part of the business, but it sounds like you had a bad couple of days,

Henry:
Part of the game.

Kathy:
Never a dull moment.

Dave:
Well, that’s why it’s good to have friends in the industry and to have podcasts like this where you can commiserate and understand that it’s not just you. Everyone goes through these things at some point or another. Well, Kathy, James, Henry, thank you so much for being here today and thank you all so much for listening to this episode on the market. We’ll see you soon.