Since last fall, Evan Mast and his partner have been looking for a new, larger home in Chicago before the arrival of their second child.
They’ve been checking Irving Park and Logan Square, but it’s been a long process, mired by the same pressure point many Chicagoans have felt in recent years: a lack of homes on the market.
And Mast, an economics professor at the University of Notre Dame, thinks President Donald Trump’s tariffs and fears of a recession in the U.S. may add fuel to the fire.
“I definitely think it’s slow out there,” said Mast. “Who knows what inventory would be like if it weren’t for the current economic situation, but my guess would be that it’s probably slowing things down.”
Trump’s tariff policies have been central to his second term. Last month, he said he would place 10% “reciprocal” tariffs on most nations. But facing a global stock market meltdown, he issued a 90-day pause but raised tariffs on Chinese imports to 145%.
The tariffs affect goods including steel, clothing and semiconductors — causing higher prices for importers and ultimately, consumers. Experts say tariffs could also mean bad news for the housing market through higher material costs for homebuilders and possible interest rate spikes for consumers.
“The economic impact of this is very relevant for the housing market,” Redfin’s head of economic research, Chen Zhao, said. “It’s actually hard to keep up with the estimates on what is the impact on the cost of building a home right now because the tariffs themselves keep changing. But I think … that it’s going to be much more costly to build a house now.”
Builders are bracing for tariffs’ impact
Chicago-based Lexington Homes has built more than 40,000 homes across the Chicago area since its founding in 1973. The homebuilder is working on several residential developments, including a community in Morton Grove that’s almost completely sold.
But Lexington only works with general contractors about three months out, so it’s hard to say how tariffs will affect future construction, Lexington Homes Principal Jeff Benach said. Tariffs could largely be a “wait-and-see” situation, he said, as some construction vendors didn’t broach the subject until early April.
“So far, we have not heard anything from our vendors that tells us that anything’s on the horizon in terms of a [price] bump up,” Benach said.
Roughly 85% of all U.S. softwood lumber is imported from Canada, according to the National Association of Home Builders.
Canadian lumber is currently exempt from Trump’s “reciprocal” tariffs. But the U.S. Department of Commerce, as part of a separate annual review process, said it was considering increasing lumber duties from its current 14.5% to 34.5%, with a final decision expected in August.
The National Association of Home Builders said last month it filed a letter with the Commerce Department arguing that additional lumber tariffs shouldn’t be imposed because housing is a critical component of national security.
Homebuilders are already feeling the effects of tariffs, with 60% of builders surveyed in April by the National Association of Home Builders reporting their suppliers have increased prices or announced impending price hikes. Builders estimate tariffs will add $10,900 to the cost of a home, according to the association.
Benach said the exemptions “will help us,” but the homebuilder was still waiting for pricing updates from its appliance vendors. Home appliances are expected to be hit hard by tariffs, since many components are manufactured and shipped from overseas.
Homebuyers have been pummeled by interest rates that averaged as high as 7.22% last year. The average rate on a 30-year mortgage fell to 6.76% from 6.81% last week, Freddie Mac said Thursday. A 15-year fixed rate mortgage, popular with homeowners refinancing, fell to 5.29% from 5.94% last week. It’s down from 6.47% a year ago, Freddie Mac said.
While rates have slowly come down, many homeowners are still hanging on to the record-low rates they got during the pandemic, said Grigory Pekarsky, co-owner of Vesta Preferred Realty.
“Sellers are still not really letting go of their nice properties,” he said.
Tariffs impact interest rates in a few ways, Zhao said. They can lead to inflation, which could cause interest rates to rise. But tariffs can also have a recessionary impact if consumers pull back from spending because of higher prices, Zhao said. Depending on how tariffs impact the economy, it could influence the Federal Reserve to cut rates.
Zhao said what happens depends on if the inflationary impact of tariffs is long or short term. If inflation isn’t temporary and the Fed doesn’t cut rates, the U.S. could see higher interest rates alongside a recession.
“That’s a very bad situation for the housing market because it means that there’s not a lot of demand, because people are worried about their jobs and their finances,” Zhao said “But it also means that you don’t have the normal mortgage rate relief that you normally get in a recession to help stimulate the housing market.”
‘Volatility is a buyer’s friend’
BluPrint Home Loans Senior Vice President Joey Rosen sees a window of opportunity for potential homebuyers.
“It’s a unique landscape in the market that we haven’t seen,” Rosen said. “But I think volatility is a buyer’s friend. If you can look beyond the fear and get a deal … that’s going to set you up long term.”
Rosen said he hasn’t had many clients recently asking about tariffs. But he knows volatility in the market can make some people pull back on big purchases like homes or cars.
Pekarsky said his team had a massive first quarter with 127 homes sold. During that same time last year, his team closed on 76 homes.
Now, with tariffs and the economic uncertainty, Pekarsky’s seen a few clients pull back. But he still urges people to buy now, if they can. The median rent in Chicago as of January 2025 was $1,633 per month, according to research from Gensler and Pew Charitable Trusts.
“The real argument … is rentals are exponentially higher this year,” Pekarsky said. “It still makes a better decision to buy.”
Chicago — alongside many other cities — has been in a seller’s market for years, increasing competition among buyers and driving up prices.
The median price of a home shot up more than 6% in March to $380,000, according to a report last month from the Illinois Realtors. It also said 1,812 homes sold in Chicago, slightly up year over year, when 1,804 homes were sold.
Stephanie Cutter, a Realtor at Coldwell Banker, said tariffs will likely make new construction more expensive and less frequent. With fewer homes added to the market, she expects Chicago to remain a seller’s market in the near future.
“Inventory is so dramatically low that I think it will take years of creating new homes before we have a balance in inventory — and that will be harder to do with tariffs,” Cutter said.
If someone is interested in a new construction home, now is the time to act, Cutter said. Newer homes will likely see big price jumps in the next year once tariffs increase material costs.
Cutter advises those looking to sell to consider more than just their interest rate. She said there are creative moves like renting one’s current home, which can give sellers flexibility on a new home purchase. Refinancing is also an option, if rates drop.
For Mast, the biggest frustration while searching for a new home is the lack of inventory. He’s seen an uptick in listings — spring tends to be the busiest season for the housing market — but his biggest worry is tariffs creating a “stagflationary effect,” which includes high inflation, slow economic growth and unemployment.
“Now, it kind of feels like things are picking up a bit,” he said. “But we were looking a little bit in February, when things are slow anyway, and then you add a tight market on top of this. We were like, ‘We’re never going to see anything come up that will work for us.’”