While the direct effect of tariffs on consumer prices and international trade usually commands the headlines, the duties’ indirect impact on housing and mortgage lending also merit thorough examination, according to a business solutions firm leader.
Rajeev Kumar, executive vice president of Flatworld Solutions, told The Title Report about five “critical ways” in which tariffs are “quietly shaping” the mortgage industry and discussed their “hidden impacts” that should command more attention.
Kumar noted that tariffs play a key role in increasing costs for homebuilders and buyers, compounding housing affordability challenges, affecting mortgage rates, slowing housing market activity, and compressing lenders’ profit margins.
One of the most direct impacts of tariffs, according to Kumar, is the increased cost of imported building materials such as lumber, steel, and concrete. This increases home construction expenses which in turn leads to higher prices for newly constructed dwellings.
“For mortgage lenders, higher construction costs mean larger loan amounts,” Kumar said. “While this might initially appear advantageous, larger loan balances often come with heightened default risks, particularly if homebuyers struggle to meet higher monthly payments over the long term.”
Another area of concern, Kumar said, is that tariffs “exacerbate the housing affordability crisis,” particularly for younger and first-time homebuyers who typically face other major barriers to entry.
The affordability challenges are evident when data shows that the median age of first-time homebuyers now stands at “an unprecedented 38 years old,” Kumar observed.
As a result, lenders may see decreased loan origination volumes, particularly among demographic groups such as millennials and younger Gen X buyers.
“This affordability issue also feeds into broader economic inequality, as homeownership is often considered a critical wealth-building tool for many families,” Kumar said. “As affordability diminishes, the economic divide could widen, with fewer households able to achieve financial stability through real estate.”
When tariffs increase the costs of goods, Kumar noted the Federal Reserve may respond by boosting interest rates to curb inflation. Such an increase typically means higher mortgage interest rates which directly affect loan affordability, he said.
Mortgage rates have been stable, with an average of about 7.05 percent as of early February. Kumar noted that figure could change.
“Persistent tariff-driven inflation could swiftly push rates higher, significantly altering mortgage market dynamics and potentially suppressing housing market growth,” he said.
The combination of higher home prices and potential mortgage rate hikes can “considerably slow down housing market activity.” Kumar said.
Although the National Association of Realtors projected a 9 percent increase in home sales for 2025, Kumar noted implementation of tariffs could temper this optimism.
“Rising prices and reduced affordability lead to cautious consumer sentiment, fewer home transactions, and prolonged market stagnation,” Kumar stated. “A slower housing market can create challenges for lenders, pressuring them to adapt by tightening credit availability or reassessing risk profiles, potentially restricting access to mortgages even further.”
Navigating a landscape of increased operational risks, increased default potentials, and lower sales volumes can “significantly compress profit margins for lenders,” Kumar said.
Lenders are dealing with a situation where they must either accept lower profits or try to pass the elevated costs on to borrowers via higher rates and fees, according to Kumar, who added that these actions would exacerbate affordability problems.
As lenders try to operate with smaller profit margins, Kumar said there could be broader implications for innovation and investment in the mortgage industry.
“Reduced profitability limits the resources available for lenders to invest in technology, customer service enhancements, and competitive lending products, ultimately diminishing the industry’s long-term growth potential,” he stated.
Kumar told The Title Report that both mortgage lenders and prospective buyers must be cognizant of these indirect consequences to navigate the market in an effective manner.
“The last 30 months have been challenging for mortgage lenders, and unfortunately, the tariffs may prolong this ‘winter season’ in our industry,” he said.
For more information, visit Flatworld Solutions.