Policy Uncertainty Rising as Macro Concerns Persist
| October 15, 2025 |
| Policy Uncertainty Rising as Macro Concerns Persist |
| Following the Federal Reserve's interest rate cut in September — the first cut since last year — there was a slight rise in optimism among some prospective home buyers. However, macroeconomic uncertainty has increased in the last two weeks, which could offset that positive momentum. New Tariffs In Play The administration announced significant tariffs on furniture, bathroom vanities, cabinets and softwood lumber. For the newly announced section 232 lumber tariff, the rate is 10%, which is less than many experts anticipated. Moreover, unlike other section 232 tariffs that will rise in 2026, the lumber tariff will remain at 10%. However, for Canadian lumber, the new tariff stacks on top of the existing effective 35% duty, so the combined tariff/duty rate is effectively 45%. The combination of lumber and cabinet import taxes will have a particular effect on remodeling. The effects of prior tariffs are beginning to take shape in the data. From the start of 2025, household furnishings prices increased at a 6.6% annualized rate — more than twice as fast as inflation. Some food prices, like coffee and bananas, are now rising significantly faster than general inflation. And trade conflicts are having other macro effects, such as the 50% drop in soybean exports from the U.S. to China over the course of 2025. The administration is preparing a bailout package of more than $10 billion to offset farm losses stemming from lost exports. Then, last week, China announced restrictions on rare earth exports. In response, President Trump announced an additional 100% tariff on Chinese imports, set to go into effect on Nov. 1. This tariff would have significant cost effects on consumer goods. However, markets are hoping for a resolution before the end of this month. Prevailing Economic Risks Adding to the uncertainty is the ongoing government shutdown. There was no Bureau of Labor Market Statistics labor market report for September. The most-watched non-government job data (from HR software provider ADP) indicates that the private sector lost 32,000 jobs in September. If the shutdown continues one more week, it will likely begin to have GDP and bond market consequences. On housing policy, President Trump and the Federal Housing Finance Agency (FHFA) director made social media comments regarding home building and lot supplies. The thrust of the comments focused on national builders’ lot inventories, with the implication that the pace of building should and needs to accelerate. (This assumes labor, materials, and other factors are ready to be deployed, and such building can be done profitably in today’s soft-demand environment.) Smaller builders operating in markets with large builders should be aware of this possible source of new supply and impact on pricing strategy. FHFA could help smaller builders via improvements to construction-to-permanent lending and investigating ways to enhance the acquisition, development and construction (AD&C) loan market. Lack of access to lots is a constraint for private home builders. And private builders dominate supply in secondary and tertiary building markets and rural areas. With respect to overall macro conditions, the price of gold is sending possible warning signals, having increased 54% since December 2024. Investors typically seek gold as a hedge to future risk. In this case, it may be a hedge against future inflation or system risk. And with growing talk of an AI bubble, investors can hedge a future stock market downturn with gold. Nonetheless, the 10-year Treasury rate is approaching 4%. The average 30-year fixed-rate mortgage fell back to 6.3%, near the lowest in a year. Despite the uncertainty and macro risk — which can often be the costs for policy reforms — rates closer to 6% than 7% should help stabilize home buying demand. Dr. Robert Dietz NAHB Chief Economist @dietz_econ |
