This week brought some tough news for anyone keeping an eye on the US housing market.
Inflation data released Tuesday showed that consumer prices, excluding food and energy, rose 3.1 percent in July—higher than expected.
Just two days later, the Producer Price Index, which tracks costs paid by US producers, jumped 0.9 percent.
These figures signal mounting pressure on prices that will inevitably affect consumers.
How Tariffs Are Driving Costs
For months, economists have warned that the high tariffs implemented under President Donald Trump would eventually be felt by shoppers.
So far, companies have absorbed much of the impact, but that cushion won’t last forever.
Analysts predict that by the end of 2025, US tariff rates will likely stabilize around 10 to 15 percent on most goods.
In the meantime, expect consumer prices to inch higher—an inflation ripple that will influence the housing market.
Mortgage Rates and Market Stagnation
Rising costs for building materials, like Canadian lumber, won’t derail the housing market by themselves.
The bigger factor is inflation’s impact on Federal Reserve policy.
With prices climbing, it’s increasingly unlikely that Fed Chairman Jerome Powell will lower interest rates at the September meeting—or at any point in 2025.
Currently, the average 30-year fixed mortgage sits at 6.58 percent.
Homeowners who locked in rates as low as 3 to 4 percent face a dilemma: selling their homes means taking on a significantly higher mortgage.
As a result, sellers demand steep prices, while buyers struggle to keep up.
This dynamic keeps much of the market in a state of stagnation, except in hot spots like Miami or Dallas-Fort Worth.
Adapting to a New Housing Reality
Buyers need to adjust expectations. Many may need to consider homes about 30 percent smaller than they had hoped.
Financial experts strongly advise that housing costs—mortgage, insurance, and taxes combined—should not exceed one-third of your monthly cash flow.
Ignoring this rule can lead to financial strain, making it difficult to maintain both your home and lifestyle.
A Historical Perspective on Rates
It’s worth remembering just how fortunate buyers are today.
In 1981, the average 30-year mortgage rate was nearly 19 percent.
Rates gradually declined over the next decade but remained above 8.5 percent well into the 1990s.
Compared with that era, today’s rates, though higher than recent lows, are still relatively manageable.
Location and Tax Strategies Can Help
Moving to states with lower taxes, such as Tennessee, North Dakota, South Dakota, Florida, or Texas, can improve your odds of finding an affordable home.
Government policies, like tax breaks, can also make a difference.
In Canada, for example, retirees don’t pay capital gains taxes when selling their primary residences, easing generational housing transitions.
Key Takeaways for Homebuyers
The US economy is strong, with investment and job growth fueled by industrial policy.
While that’s positive for the broader economy, it won’t drive mortgage rates down anytime soon.
Buyers need to be realistic: consider smaller homes, stay within manageable budgets, and look strategically at locations and tax advantages.
Patience, planning, and financial discipline are now essential to navigating the US housing market successfully.
