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With President Trump's tariffs threatening to reignite inflation and potentially tip the US economy into a recession, the housing market remains in a precarious position.

“I think it's just kind of going to be another lost year for housing in terms of supply and demand,” Daryl Fairweather, Redfin’s chief economist and the author of the forthcoming book “Hate the Game,” said on Yahoo Finance’s Financial Freestyle podcast (see video above or listen below).

Fairweather pointed out that limited housing inventory likely won't ease up, noting that “builders aren't going to want to build when they're facing tariffs on materials and labor shortages because of immigration policy.”

While the Trump administration has scaled back its steepest tariffs on goods from China and other trading partners, which has diminished the US recession odds, the overall tariff rate is still much higher than at the start of the year.

Economists like Fairweather expect inflation to rise, at least temporarily, which could lead the Federal Reserve to keep interest rates higher for longer.

Fairweather cautioned that higher prices could make it harder to build things, which could "spread throughout the economy in unexpected ways." As it stands, housing inflation is one of the most stubborn areas where costs are rising.

Read more: What Trump's tariffs mean for the economy and your walletConstruction crews work to build new homes in a subdivision by Tri Pointe Homes Colorado in Aurora Highlands, Co., on April 8, 2024. (RJ Sangosti/MediaNews Group/The Denver Post via Getty Images)·RJ Sangosti/MediaNews Group/The Denver Post via Getty Images via Getty Images

It's possible that home values could erode in real terms if they increase by less than broader inflation. However, Fairweather doesn’t expect a housing crisis like in 2008, when many homeowners were underwater on their mortgages and forced to sell.

That, coupled with the low mortgage rates many homeowners secured in recent years, means that some potential sellers will stay put, contributing to lower inventory.

“The housing market [is] in a really tough spot,” Fairweather said. “And I think if we enter a recession and the trade war looms, it could hurt home values.”

The problem of housing affordability

Many Americans have already found it particularly difficult to break into the housing market.

Add to this increased material costs from tariffs and reduced labor due to Trump’s immigration policies, and there may be even fewer points of entry.

In its quarterly report last month, homebuilder PulteGroup (PHM) warned that the cost of building materials has already increased. Key components like plumbing fixtures, water heaters, porcelain, HVAC parts, tile flooring, circuit breakers, and load centers are subject to the global 10% tariff rate.

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While there are tariff carveouts for some building materials like copper and lumber, the higher costs associated with other housing items imported from overseas, such as appliances, are expected to be offloaded on to consumers.

Fairweather noted that the Midwest is likely the “last affordable region in the country” for prospective homeowners. But moving to that region may not be possible for those who need to live in more expensive areas to further their careers.

Read more: Should you buy a house? How to know if you're ready.

That said, Fairweather said there is still some hope for those looking to make an impact on housing affordability over the long run.

She pointed out that the federal government “doesn’t actually control housing policy.” Instead, this responsibility falls to local governments, meaning you can get involved by speaking to your local planning commission.

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“It is almost always the state and local government that is determining how much housing can be built,” Fairweather said. “And this is one area where anybody can get involved. You can show up at your local planning commission and have your voice heard in terms of wanting more housing to be built.”

“This is a great way to advocate for really everyone being better off,” she continued. “The most vulnerable people are the ones who end up homeless when rents go up. So if you want to make the world a better place, a little small thing you can do is just go complain at your local planning commission.”

Every Monday, Financial Freestyle host Ross Mac talks with key guests to discuss their wealth-building journeys and what it takes to build a lasting financial footprint. You can find more episodes on our video hub or watch on your preferred streaming service.

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