A Market in Deep Freeze: The Forces Keeping Housing Unaffordable
As the frigid winds of winter usher in the second month of the year, they serve as a chilling metaphor for the deep freeze that continues to grip our local real estate market—where sellers remain scarce, buyers face relentless headwinds, and the long-awaited thaw continues to tease us from what seems to be an ever-distant future.
The Supply Shortage: A Crisis Years in the Making
Beneath this icy market reality lies a deep structural issue—one reflected in the stark numbers that define Monroe County’s housing crisis. It’s hard to believe that five years into this deep freeze, Monroe County’s housing supply remains alarmingly scarce, with only 135 single-family homes priced above $200,000 on the market. This scarcity isn’t unique to our region; in fact, it mirrors a national trend where demand continues to outstrip supply.
The Lock-In Effect and Lagging New Construction
At its essence, the US housing crisis can most easily be defined as overwhelming demand with chronically insufficient supply. This shortage stems from two primary factors: first, the ‘lock-in effect,’ which has kept existing homeowners from selling, and second, a construction sector failing to keep pace with demand. The lock-in effect can be solved either as a result of the changing composition of families or because of lower mortgage rates. Eventually, the former will compel homeowners to value practicality over financial prudence. Unfortunately, lower borrowing costs remain elusive, trapped in the uncertainty of economic policy and inflation concerns—challenges that we’ll dive into in a moment.
The other major driver of the housing crisis—one that has only become more concerning amid recent developments—is the insufficient pace of new housing starts. According to Freddie Mac, in the third quarter of 2024, the United States faced a shortfall of 3.7 million housing units needed to satisfy the needs of growing demand. Yet, despite this pressing shortage, only 1.36 million new homes were completed in 2024—a fraction of what is needed.
Trump’s Housing Policies: A Mixed Bag
Recognizing the dire consequences of this deficit, Donald Trump signed an executive order on his first day in office that seeks to increase housing supply and affordability. Days later, however, he imposed a 25% tariff on imports from Canada and Mexico—a move seemingly at odds with his stated goal. Many economists warn that these policies could inflate construction costs, drive up mortgage rates, and slow economic growth.
Given the heavy reliance of US housing construction on imported materials, Trump’s tariff policies could significantly drive up costs. One quarter of all residential building material imports into the United States come from Mexico and Canada. Thirty percent of all of the softwood lumber (used in residential framing, roofing, and flooring) needed in US residential construction is imported from Canada. With tariffs in place, construction material costs will likely rise, increasing the costs for both new home builds and renovation projects. These increased costs could further discourage housing starts, exacerbating the already dire inventory shortage.
Economic Uncertainty and the Road Ahead
Beyond supply constraints, economic policies also play a crucial role in shaping the housing market. In the summer of 2022, the U.S. Consumer Price Index peaked at 9.1% before declining to 2.6% by December of 2024. However, according to The Wall Street Journal, recent 25% tariffs on imports from Canada and Mexico threaten to push inflation back up to a projected 3.2% next year. This resurgence in inflation could keep mortgage rates elevated, further discouraging potential buyers and stalling new construction. Additionally, anticipated deficit spending, stricter immigration policies, and the extension of tax cuts favoring the wealthy may compound these challenges, potentially leading to even higher borrowing costs and a more sluggish housing market.
A prolonged trade war could also dampen our nation’s Gross Domestic Product, with estimates suggesting a potential reduction of 0.63% from the current 2.8% growth rate next year. Such economic slowdown may lead to job losses, further weakening housing demand as consumer confidence and purchasing power decline.
Then again, the president’s trade wars could simply be a calculated move to gain leverage over Mexico and Canada. Just weeks ago, when faced with economic pressure, Colombia quickly agreed to repatriate citizens who had entered the U.S. illegally and the threat of tariffs was removed. Then, on Monday, our two major trading partners agreed to enhanced border security in an effort to stem the flow of fentanyl into the United States. As a result, the president delayed enforcement of his border tax strategy for thirty days. Whatever his endgame, one thing is certain: no one, including the Donald Trump, wants a prolonged and painful trade war. But until this dispute is fully resolved, affordability will remain out of reach for many and the housing market will remain frozen in uncertainty.
As always, if you have any questions, feel free to give me a call at 330-8750. Thanks!