The US housing market has seen some ups and downs over the past few months, but new challenges may emerge that could put the market at risk. According to Torsten Slok, Chief Economist at Apollo, the housing market now faces increasing downside risks due to a combination of layoffs from Elon Musk’s Department of Government Efficiency (DOGE) and uncertainties related to the ongoing trade war. These developments could have a major impact on an already fragile market that has been struggling to recover from the pandemic’s economic disruptions.
In this blog post, we will explore the key factors driving the housing market’s current trajectory, including the potential risks posed by layoffs, job cuts in the federal government, trade war concerns, and the ongoing affordability crisis. We will also examine the data that indicates some recovery in housing sales and why it’s not necessarily all good news for homeowners or potential buyers.
The Growing Risks to the Housing Market: DOGE Layoffs and the Trade War
Slok’s recent comments underscore the growing concerns about job security in the US economy, particularly in light of the layoffs happening within Elon Musk’s Department of Government Efficiency. As part of Musk’s broader cost-cutting measures, there has been a significant wave of layoffs in government sectors, which could have serious implications for the housing market.
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Rising Unemployment: If the layoffs continue and the unemployment rate starts to climb, job losses will likely lead to a further slowdown in the housing market. A person who has lost their job is far less likely to consider buying a home, particularly in an environment where home prices remain high and mortgage rates are still elevated.
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Impact of Trade War Uncertainty: Additionally, the ongoing trade war between the US and other global powers could add further pressure to the housing market. The uncertainty created by fluctuating tariffs, trade policies, and international relations could trigger more layoffs and contribute to a weak labour market, which would compound existing challenges in the housing sector.
Job and Wage Growth: A Temporary Bright Spot in Housing Sales
Despite these downside risks, there has been some positive data in the housing sector. According to Slok, solid job growth and wage increases have boosted demand for housing in recent months. But this increase in demand may not be enough to offset the major affordability issues that continue to haunt the housing market.
Key positive indicators include:
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New Home Sales: Sales of newly constructed homes saw an increase of 1.8% month-over-month in February, and a rise of 5.1% compared to the same month the previous year. This suggests a slight recovery in new home purchases.
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Pending Home Sales: February data revealed that pending home sales rose by 2% compared to January. However, these sales were still down 3.6% compared to the previous year. While the data suggests some improvement, it’s clear that the market is still struggling to gain momentum.
The Reality Check: Affordability Issues and Stagnant Market Activity
While new home sales have seen some positive movement, economists caution that affordability issues are still holding back the broader housing market. Sam Williamson, Senior Economist at First American Financial, explained that high home prices and elevated mortgage rates continue to limit housing market recovery.
Here’s why affordability remains the biggest hurdle for potential buyers:
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High Home Prices: Despite the overall slowing of home price appreciation, prices continue to rise. According to the S&P CoreLogic Case-Shiller Index, home prices increased by 4.1% in January. While this is lower than the double-digit growth seen during the pandemic, it still puts a significant strain on buyers.
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Mortgage Rates: The average 30-year fixed mortgage rate currently sits at 6.65%, according to Freddie Mac’s latest data. While this is slightly lower than the peak rates seen in recent months, it’s still far above the ultra-low rates seen during the pandemic. This combination of high home prices and high mortgage rates makes homeownership less attainable for many Americans.
What This Means for Existing Home Sales
Existing home sales have also been a point of concern. While they rose 4.2% from January to February, the year-over-year decline of 1.2% signals that the market is not recovering as quickly as many had hoped. Selma Hepp, Chief Economist at Cotality (formerly CoreLogic), echoed this sentiment, noting that activity remains sluggish compared to historical trends.
Existing homeowners are also hesitant to sell due to concerns over losing their favourable low mortgage rates. Many are staying put instead of listing their properties, further exacerbating the housing supply shortage.
What Are the Key Takeaways for the Housing Market in 2025?
The housing market is caught between two conflicting forces: signs of recovery and growing risks that could send it into a tailspin. Here are the key takeaways based on the current situation:
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Affordability Remains the Biggest Challenge: High home prices and elevated mortgage rates continue to be a significant barrier for many potential buyers. Even though there are some positive signs in new home sales, overall affordability is still limiting market activity.
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Layoffs Could Push Housing into a Downward Spiral: Job cuts, particularly those tied to Elon Musk’s Department of Government Efficiency and the trade war, pose significant downside risks to the housing market. A rising unemployment rate would make it even harder for many people to enter the market, especially when they’re already struggling with affordability.
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New Home Sales Outperforming Existing Homes: While existing home sales remain relatively flat, new home sales have seen a boost. Homebuilders continue to offer incentives like mortgage rate buydowns to attract buyers. However, this market remains stagnant, and the recovery appears slow.
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Trade War and Economic Uncertainty Are Major Wildcards: Trade war uncertainties are another factor that could dampen the housing market’s recovery. The lack of clarity around tariffs and global trade policies could trigger further economic instability, leading to more layoffs and even higher unemployment.
Conclusion: Caution Ahead for the Housing Market
While the housing market has shown some resilience in the face of high prices and high mortgage rates, the new downside risks posed by layoffs, the ongoing trade war, and the affordability crisis suggest that the recovery may not be as strong or as quick as hoped. With rising unemployment and the challenges of purchasing a home in today’s environment, the outlook for the housing market in 2025 remains uncertain.
Photo credit: AOL
