Stocks Plunge as Trump Trade Policies Sow Confusion: What It Means for the Housing Market

Uncertainty over President Donald Trump’s constantly shifting trade policies has sent the stock market into a sharp dive this week, sparking growing concerns about potential fallout for the housing market.

The tech-heavy Nasdaq composite plunged 4% on Monday, marking its worst day since 2022. Selling continued into Tuesday, with the Dow Jones Industrial Average down 500 points in midday trading, a decline of 1.2%, after shedding more than 2% on Monday.

Shares of the largest publicly traded homebuilders were down across the board at midday Tuesday, with losses ranging from 0.5% to more than 5%. Trading in mortgage finance firms was mixed.

The sharp decline in the major stock indexes followed growing confusion over Trump’s trade policy, after the president repeatedly announced and then wholly or partly suspended massive tariffs on Canada and Mexico, the country’s two largest trading partners.

In his latest move, Trump on Tuesday announced total tariffs of 50% on Canadian steel and aluminum, saying he was imposing the levies in response to Ontario’s new 25% tax on electricity exports to the U.S.

The constant whipsaw of policy changes, coupled with Trump’s recent remarks that he is not concerned with the performance of the stock market, have begun to raise growing fears of a looming recession.

In troubling signs, the New York Fed’s latest survey of consumer expectations found an uptick in short-term inflation expectations, while the Atlanta Fed’s real-time GDP tracker currently predicts the economy will contract 2.4% annualized in the first quarter. 

“The risks of a U.S. recession starting in the coming year are uncomfortably high and rising,” Moody’s Chief Economist Mark Zandi said Monday in a post on X.

“These tariffs will spark a global trade war, with U.S. trading partners imposing their own tariffs and non-tariff barriers on U.S. products,” he added. “Stock prices will also continue to slide, weighing on the wealth and spending of well-to-do Americans, which is driving much of the economy’s current growth.”

What the stock market turmoil means for the housing market

Although the stock market is not the same thing as the economy, stock prices are essentially a prediction of future business profits, making them a leading indicator of economic conditions.

As well, stock prices can fall only so far before they begin to affect consumer behavior and have ripple effects on the real economy, including the housing market. 

“The recent nosedive in the stock market could slow down the housing market even further, as prospective buyers are watching some of their wealth that they might be using for a down payment on a new home evaporate,” says Realtor.com® senior economist Joel Berner. 

Berner notes that price reductions and time on the market are already rising so far in 2025 as the market has started to rebalance in favor of buyers.

For the year through March 1, national median list prices are down 1.2% compared with the same period last year, according to Realtor.com data. 

In the same period, the number of new listings hitting the market is up 4.7% annually and total active listings have surged 26%. Homes are also typically spending six more days on the market than they did last year.

If prospective buyers see their savings in the stock market dwindle, and begin to grow fearful about losing their jobs in a recession, those trends might accelerate, says Berner.

Homebuilders have also raised concerns that tariffs on imported building materials could raise the cost to build homes, potentially raising new-home prices.

However, a true recession could raise the opposite risk of falling home prices, if sharp job losses trigger distressed sales in the existing-home market, which accounts for the vast majority of home transactions.

For those who keep their jobs, a recession would almost certainly bring lower mortgage rates, which would improve affordability alongside any decline in home prices.

Still, a recession this year is far from assured, with Zandi placing the odds at about 35%, up from the typical 15% chance that a recession could strike during any given year.

“Recent employment figures don’t point to a recession upcoming, but as the Trump administration continues to fight a trade war, we may see softer employment figures coming up as businesses find that their international sales slow down and the cost of imported inputs increase,” says Berner.

“The underlying labor market remains strong for now, but is not impervious to the effects of tariffs.”