As we enter Q2 of 2025, the majority of headlines will be related to the recent changes in tariffs, how markets are reacting and political views associated with tariffs. While this is a huge topic to unpack and we’re only 2 days into it we’d like to try and take a glass-half-full view of things.
Let’s start by looking at the worst case scenario. If the new tariffs were to stay in place for the next 2 years, we would most likely see not just a recession but a global depression, the U.S. included. We have to make the assumption that is not the intention so why do it and why now?
From the beginning, President Trump has talked about the U.S. not being in “good deals” when it comes to trade and wanting to renegotiate with the world the deals currently in place. There has been a lot of scrutiny on the percentages that the administration released and whether or not the numbers are accurate. We’re not going to get into that discussion but our impression is that the administration believes the trade deals we have in place are not as good as they could be.
Prior administrations may have negotiated behind closed doors but in true Trump fashion, he’s made this public. Again, we’re not here to debate his tactics or presentation purely to look at it from an economic perspective. By increasing the tariffs on other countries, the administrations hope is that it brings them to the table to renegotiate current deals in place.
It’s hard to imagine that every country in the world will come to the table, renegotiate terms and create better deals for the U.S. It’s estimated that if these new tariffs were to stay in place the U.S. would create an additional $600B in revenue but what hasn’t been talked about is the losses in other areas. What happens to our currency? What happens to stocks or U.S. companies? Would it end up being a net neutral?
No one knows the answer to these questions and we don’t believe that the tariffs will remain in place long enough for anyone to find out. We believe that the Trump administration did this to renegotiate as many trade deals as possible, force the world to start a conversation with the hopes of improving things domestically.
Will there be a short term pullback on stocks? Absolutely, and we’ll see investors run for the safety of Treasuries which lowers mortgage rates. Do we think this will be long-lived? No, we believe we’ll see a short term pullback and then a quick and equal recovery.
In turn, there could be a window over the next couple of months where we see lower mortgage rates, which is great for existing homeowners to potentially refinance. We do believe that we’ll then see an increase in rates but the overall trend will be for the better the remainder of the year.
Our hope is that enough deals get renegotiated to where the administration can pull back the new tariffs and settle markets in the long term. While no one knows when or exactly how this is going to play out we believe this is the most likely outcome from the news this week.
As with anything dealing with the global economy, there are hundreds of variables that no one can predict but we believe this is a situation of short-term pain for long-term gain. It can help homeowners who take advantage of the dip in rates, home buyers who happen to find a home in the next couple of months but big picture our view and our stance on housing hasn’t changed.
We are still living in an environment where the demand outweighs the supply 2 to 1, we are still expecting 4% to 5% in appreciation for 2025, and we still expect that the overall trend in mortgage rates will be lower over the course of the year.
We don’t believe the destination has changed but the path to getting there has taken some twists and turns. We also understand that every clients situation is unique and we’re more than happy to have a private consultation with you, your friends or family anytime. Always feel free to reach out if we can be of service, provide advice or make connections for anything real estate related.
