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All the ingredients for a busy spring homebuying season were there: Buyers had more inventory to choose from, mortgage rates were holding steady, and showings and mortgage applications were picking up.
Now, the volatility that gripped financial markets after President Trump announced sweeping tariffs on US trading partners — and continued even after he delayed many of the higher levies — threatens to upend it all. Consumer confidence has plummeted as buyers fear the tariffs will lead to inflation and a recession. Prospective homebuyers, fretting about their job security and investments, are rethinking their searches, and sellers are worried too.
“Sellers are concerned about their home values,” said Jacob Barker, a New York-based broker at Coldwell Banker Warburg. “Buyers, even if they are not personally worried about their own financial position, are loath to put in an offer when the price might be 7% less a few months from now.”
Another weak spring would put the country on course for a third straight year of dismal home sales. Just over 4 million previously owned homes were sold last year, the lowest level since 1995. Early signs, including an uptick in sales in February, suggested this year would be better. Now, no one is sure.
On some corners of the internet, tongue-in-cheek posters have long rooted for a recession, saying they’ll be ready to jump into the market as soon as home prices crater. But what happens to home sales and prices during and immediately after a major stock market decline is more complicated.
With the exception of the 2008 financial crisis, which was caused in part by the housing market, home prices have risen through past stock market corrections and in the 24 months that followed, Morgan Stanley analysts led by James Egan wrote in a note last week analyzing 50 years of data.
Home sales also usually drop during that period and then rebound sharply when the correction ends.
The steepest sales declines typically happen during periods when stocks fall but mortgage rates rise. That’s where the housing market finds itself now. The S&P 500 (^GSPC) has entered correction territory, down 10% year to date and off 14% from its all-time high. Mortgage rates, meanwhile, have risen more than 20 basis points in recent weeks to 6.83%.
Read more: Historical mortgage rates: How do they compare to current rates?
Some level of buying and selling has to persist no matter how high mortgage rates and home prices go, Egan’s team argues. After all, people relocate for jobs or see their housing needs change after big life events like marriage, divorce, births, or deaths.
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