Mortgage Rates Fall Fast as Tariffs Trigger Mass Stock Selloff, Economy at Risk

Dave:
Last week, president Trump announced what I think genuinely could be the most significant change to US economic policy in more than 50 years. Today we’re going to dive into what happened, how the global economy is reacting, and what happens from here. Hey everyone, it’s Dave Meyer, head of real estate investing at BiggerPockets, and today we’re going to unpack the enormous economic news from last week and talk about the repercussions, at least the ones that we know about that are already rippling through the global economy. And I know that we’ve covered tariffs a few times on recent episodes, but what happened over the last few week feels different, at least to me, this feels like more of a definitive, a more enduring change to US economic and foreign policy than it had when the Trump administration had made previous announcements for individual countries or individual goods or products.
And I know not everyone does this, but I watched the entire announcement of President Trump unveiling these new tariffs and these new policies. And the impression that I got was that these tariffs are here to stay for the foreseeable future. And I know that we’ve seen tariffs on, we’ve seen tariffs off over recent months, but this feels different because it’s just this broad sweeping policy and it goes beyond what a lot of people have been saying, that tariffs are just a negotiating tactic. And that could still be true. I personally believe we’re going to see some changes to tariff policies. I don’t think this is set in stone. I think individual countries, tariff levels, different tariffs on individual goods are going to change. But I think that the Trump administration is showing that they really believe in tariffs and they are going to make tariffs and deglobalization cornerstones of their administration.
And this is going to impact everyone. It’s going to impact normal people, business owners, real estate owners, lenders, agents, everyone. So we need to talk about this, and today we are going to do that. Let’s start with the easy stuff. What was actually announced. So I think there were basically three major policies that were announced on Wednesday. The first is a 10% baseline tariff for all countries, and we hadn’t really heard that much about that as an option or a realistic option at least over the weeks leading up to this. So I was a little bit surprised by that. Next, we heard a 25% tariff on automobiles, which we’ve heard a lot about auto, so that wasn’t super surprising. And then third, there were reciprocal tariffs on countries that the White House has deemed as the worst offenders. And what they did was basically look around the globe and look at countries that have implemented the highest tariffs on the United States.
This varies pretty dramatically from country to country and good to good. You might hear individual products like American pork or poultry or dairy gets a tariff of a hundred percent from one country and then it’s not tariffed at all in another country. And certain countries might have tariffs on certain American goods, but none at all on other goods. So it really varies a lot by individual country, by individual goods. But the Trump administration basically came up with a formula that calculates what the total tariff burden is to US exporters in every country, let’s call it India or China or South Korea or anything like that. And then they’re implementing a reciprocal tariff because they put tariffs on the United States. The US will now put tariffs on them, but Trump made a very clear point that they’re doing it at 50% of the rate of the tariffs that are levied on the us.
So just as an example, if you look at Vietnam for example, the Trump administration has calculated that their average tariff on US goods is 92%. So half of that means that Vietnamese imports into the US now will be taxed in form of a tariff at 46%, and that’s actually one of the higher numbers. Vietnam at 46%, but we see a lot of countries up there, Cambodia at 49%, Madagascar at 47%, we see Thailand at 36%. China is now going to be at 34%. That’s a big step up. Notably one of our biggest trading partners, the EU is now going to be at 20% Switzerland at 31% South Korea, 25% Japan, 24%. So these are huge, huge increases in tariffs on countries that we hadn’t necessarily heard were going to be part of the tariff regime. One thing that I think is really interesting to note here though is that Mexico and Canada we’re not included on this list.
We’ve been talking a lot about new tariffs on Mexico and Canada in recent weeks, but when President Trump listed his worst offenders and held up his big chart showing what the new tariff rates were going to be, Mexico and Canada were not on there. And we don’t know exactly what’s going on here, but it does seem like they may have reached some sort of agreement to be excluded from reciprocal tariffs, meaning that they will likely only be subject to 10% baseline tariffs, maybe with some additional higher tariffs on individual products and goods. I’m curious how this one plays out because this matters a lot. Not only are Mexico and Canada our neighbors, but they are two of our three biggest trading partners. And so the impact on tariffs on ordinary Americans, what happens in Canada and Mexico, disproportionately will impact what happens to you and me and everyone else more than say a 46% tariff on Vietnam might because even though that’s huge, they proportionally just make up less of us imports.
So that’s all what happened on Wednesday and there has been some fallout. We have learned a little bit so far on what’s going on Thursday and Friday. I’m recording this Friday midday and so far the main thing that we’ve heard is that China has fired a shot. They are coming back at the US with a reciprocal 34% tariff on US imports. So they’re basically matching anything that gets imported from China to the US will have a 34% tariff. And anything that gets exported from the US to China will now have a 34% tariff, meaning that American goods will now be much more expensive in China, which could potentially damage American exporting businesses. All right, so those are the policy decisions that we know about so far, but next, let’s talk about what the reaction has been in the country, in the US and in the broader global economy. We’re going to do that right after this quick break.
Welcome back to On the Market. Today we are talking about the big liberation day announcements from President Trump sweeping tariff policy that is going to, in my opinion, impact our economy pretty significantly and the global economy as well. Before the break, we talked about what has actually happened, what tariffs have gone into place. Now let’s shift our attention a little bit to how the economy, the stock market investors are reacting to what we know so far. The biggest headline here is, of course, you have probably heard this, but the stock market has tanked essentially as of Thursday. The day after this announcement, the Dow Jones dropped 1500 points. That day alone, we saw all the major indexes down somewhere between four and 7%, which if you need context, that is huge. That is a very unusual thing. Thursday, April 3rd was actually the most significant decline in the stock market since Covid shutdown since March of 2020.
So that is a pretty bad day. And then Friday, essentially the same thing happened again as of this recording. So two or basically one and a half trading sessions on the stock market. Since the announcements and the s and p 500 is down almost 9%, we are seeing the nasdaq, which is really tech heavy basically in bear market territory, which is 20% down. So in the stock market, they have more definitions around these things, but 20% to me is pretty significant decline. I think you could call that a crash in certain contexts, but it’s a really, really big meaningful decline in the stock market in just two days. And I think it’s important to note here this is happening despite some other good data coming out about the economy In just the last day, this morning alone on Friday, April 4th, we saw that the economy added 228,000 new jobs, which is really solid.
Normally if we didn’t have this tariff news, I think the stock market probably would’ve gone up on a day like today because they are as strong labor data. Instead, we saw huge declines unless of course something could change by the end of the day and we’re recording this midday, but that’s pretty unlikely. The other thing that we’ve learned, and this sort of goes hand in hand with what’s going on in the stock market, is somewhat positive news, at least for real estate investors or people who are trying to jump into the housing market. Bond yields, which are very closely correlated, more closely correlated than what the Fed does to mortgage rates have actually fallen over the last couple of days to the lowest level that they’ve been since last summer, since the summer of 2024. As we talk about on the show all the time, if you want to see where mortgage rates are going, all you got to do is follow the yield on the 10 year US treasury and the yield has dropped below 4%.
This is the lowest it has been since at least October of 2024, and that should push rates down in the next couple of days. If you’re listening to this on Monday, the day that it’s coming out, my guess is that mortgage rates, the average rate on a 30 year fix is going to be somewhere around 6.4, 6.5% to start this week, which is pretty good. If you remember back in January, we were back above 7% and just a couple of days ago we were at 6.8%. So of course this isn’t a huge swing that’s going to change a ton of affordability in the market, but it definitely helps, especially in this era where we are always starting to see some seasonal increase in buyer demand. I think it could have an impact on demand going into the home buying season, which is probably positive news for anyone who’s looking to sell a home for flippers or for agents and lenders who are just trying to get some volume back in their business.
Hopefully this will help a little bit and listen, although this is encouraging, I wouldn’t count on this lasting for very long. It might really might, but I think there’s an equal chance, at least at this point, that rates do go back up a little bit because remember, mortgage rates and bond yields are essentially always caught in this battle between on one end inflation and on the other end recession. This is what bond investors think about. On one end of the spectrum, when there is a lot of fear of recession, people want to put their money into safe assets like bonds, bonds or lending to the US government is generally seen as one of if not the safest investment out there. And so when investors see a lot of risk like they have over the last two days, they start selling their stocks that leads the stock market down, but then they need to put their money somewhere.
So they take their money out of the stock market, they put it into the bond market. And when all these people want to buy bonds, that pushes up demand for bonds and bond yields and bond demand work inversely. So that pushes down bond yields. I know I just said a lot of technical economic stuff, but what you need to know, TLDR, if there’s fear of a recession, bond yields typically go down, and that’s what we’re seeing right now. However, the other major force that will influence bond yields is fear of inflation because although bonds are generally seen as a very safe investment, one of the things that can eat away at your return or point bond returns at risk is inflation, right? Because you’re lending money to the US government for 10 years and say that you’re lending it at today’s rates of 4%. Well, if inflation goes up to 5%, that eats away not just all of your return, but actually yields you a negative return and your money is locked up.
So bond investors are very concerned about inflation. And right now what’s happening the last few days is that the recession fears are worse than the inflation fears, but pretty much every economist agrees that the implementation of these new tariffs is going to cause inflation, at least in the short run. Even President Trump himself has said that there could be pain in the short run, and I think what he’s referring to is inflation because remember, tariffs are taxes that American companies and American consumers wind up paying. And so what we’re going to have to keep an eye on is if those inflation fears actually bear out, and I don’t know if it’s going to be in next month’s inflation reading two months, three months, four months, but I think for the rest of this year we really need to look at what’s going on with inflation because if that starts to go back up, I expect that bond yields will start to go up and it will call into question whether the federal reserve is actually going to go ahead with the two rate cuts that they’re projected to make this year.
So that is what’s going on with mortgage rates. I’m mentioning this because if you are trying to buy a deal right now, this week might be a really good time to lock in a rate. It could go lower. It’s really hard to predict these things, but I also think it could go higher. So if your deals work with today’s rate, you might want to lock in just a word to the wise. Now, one thing that I’ve started thinking about in just the last few days, given what I was just saying is that usually there’s sort of a trade off between recession and inflation because inflation can happen when things are a little bit overheated. Meanwhile, inflation tends to go down when there is a recession, but there is this other economic situation that can arise called stagflation when you have both, and this is pretty rare and people kind of use this word lightly, which they shouldn’t because it’s a pretty serious problem.
But stagflation is basically when you have both of these negative economic things going on at once, you have both inflation and recession. And although it’s too early to judge, and I honestly, I do not use this word likely, I do think there is some risk of stagflation arising in the coming months at least. That doesn’t mean it’s going to stay around, but we are seeing a lot of forecasts that GDP is going to decline and we might contract, we might go into a recession. At the same time people are projecting inflation. So we might have the two economic conditions required for stagflation. And I think I’ll actually put out a video or an entire episode of on the market about this in the coming weeks because I think it’s really important. It is too early to be fearful about this right now, but it’s something I’m going to keep a close eye on in the next couple of weeks, in the next couple of months.
And I’ll actually, again, I’ll put out an episode in the next week or two about this and what you should be watching to see if that’s going to happen and if it happens, what that means for the entire economy. Anyway, that’s a digression, but just as a reminder, what we’ve seen so far as a reaction to the tariffs, our stock market has really plunged and bond yields have gone down, which have taken down mortgage rates. But for me, the big questions going forward, we just don’t know yet are what’s going to happen with the labor market? Are we going to see serious uptick in the unemployment rate because businesses get fearful? Are we going to see an uptick in inflation? And then the last one, which we’ve talked about a little bit over the last couple of weeks is what happens with consumer spending? Just as a reminder, 70% of our GDP as a country comes from consumer spending, and I am curious if people are going to get fearful or they see prices rising and pull back on spending.
I actually think we’ll probably see a short-term boost in spending because people are afraid of inflation. And so we might actually see an uptick in consumer spending in the next month or two, but what happens to three, six months from now I think is going to really tell us if there’s going to be a recession and if there is, how deep that recession might go. And for real estate investors in particular, I think understanding of three things I just mentioned, labor inflation, consumer spending are going to help us understand the direction and relative risk level, relative reward level potential in the housing market. But there is one thing that I do think we know for sure as real estate investors that everyone should know, and that’s construction is just going to get more expensive, right? If these tariffs stay in place, which I expect that they’re going to be at least some level of them, construction is going to get expensive and could be considerably more expensive.
A lot of building materials are imported. We imported a ton of lumber from Canada. We import a lot of wood and wood products like doors from Vietnam, tons of construction equipment comes from China, everything from electrical switches to small appliances, major appliances, plumbing fixtures. A lot of that comes from China. And I’ve been digging into what this actually means, and I actually found a study from totality, chief economist Selma Hap. She said the announced liberation day tariffs could push home constructions costs up by four to 6% over the next 12 months. When factored in with the current inflation levels, there will be an estimated 10% increase in material prices broadly averaging 17,000 to $22,000 increases in construction costs per home. Whoa. So that is very significant. A 10% increase in material costs is obviously going to change a lot of numbers and a lot of performers for builders of course, like we’re saying, this analysis that they did is saying 17 to $22,000 in construction cost per home.
But this is also going to impact real estate investors who might be doing more modest renovation projects or doing a flip or maybe you are doing a development, but whatever it is, my recommendation based on this study is pad your renovation budgets a lot, and I know they’re saying four to 6%, but that is in addition to the inflation rate of 3%. So we’re talking about 10% for material costs. So personally I’d pad them at least 10% if not 15%, just to be careful because right now maybe you feel differently. But my philosophy is regardless of whether you agree with these tariffs or not, they have introduced a new level of risk because we just don’t know what’s going to happen. There is a lot of uncertainty here, and for me at my personal investing, that means I want to take as much risk off the table as I personally can.
And that doesn’t mean you should necessarily stop investing. It just means be extra conservative in your underwriting. And for me, that means at least a 15% additional buffer on material costs for any renovation budgets. The next thing I would do if I were you given this news is pad your timelines for renovations or flips as well. This one is a little lesser, and this is kind of me speculating, but I have some concerns that supply chains are going to be disrupted a little bit. Remember what happened during covid, A lot of products and goods that you needed to build stuff just weren’t as available as they were previously. I’m not saying it’s going to be the same, but I do think that there might be some delays as supply chains get retooled to try and get around tariffs or to accommodate tariffs. And I don’t know how that will play out, but if it were me, I would be building in some additional timeline to any of my renovation or flip budgets as well.
So that’s what we know it’s going on in the short run and some recommendations that I have in terms of sort of broader housing market dynamics. I want to tell you what’s going on, but I think it’s a little too soon to tell. I will post another episode in the coming weeks here with an update as soon as I feel confident that I have a good grasp on the trends and anything that has changed. But honestly, I just don’t want to make assumptions about what’s going to happen before we see how things play out over the next few weeks. So for now, personally, what I’m going to do is assume a little bit more of the same, which is modestly rising inventory buyer demand is ticking up seasonally, and I think that we might see some increases in demand just from these lower mortgage rates. But let’s just step back from the housing market and talk big picture here about the economy and risk reward profiles and just being investor in general. I want to spend a few minutes about what this news means in the grand scheme of the US and global economy. We’ll do that right after this break.
Hey everyone, welcome back to On the Market. We’re here today talking about the massive economic news that dropped last week about the broad sweeping new tariff policy that the United States is implementing. And since I watched this news conference and have been absorbing a lot of this news, I’ve been trying to figure out and contextualize where this news falls in terms of significance And where I’ve come out, and I know this maybe sounds like an exaggeration, but I think this is true. I believe that this could be the most significant change to economic policy in the United States in more than 50 years. And regardless of whether you agree or disagree with the policies, it’s hard to argue for the potential of just massive impact here. And sure you could say that the stimulus package in 2008 was huge or the three stimulus packages from 2020 to 2022 also had huge impacts on the economy and everyday Americans.
But to me this feels different. It’s a policy that could reshape the entire global economy. It could shape up alliances and the entire world order. And I know again, that sounds like an exaggeration, and we obviously don’t know what will happen yet, but I think the potential for that to happen is undoubtedly true. Just look at one example that the new Canadian Prime Minister said. He said, quote, the old relationship we had with the United States based on deepening integration of our economies and tight security and military cooperation is over. So we are already hearing people not just say that this is a trade war and an economic implication. Canada, one of our closest allies is already saying that security and military cooperation is also in question. And this is why I don’t think this is just some average economic news, and I would put it on par with the last time something like this happened.
If you’re not an econ nerd like I am is in 1971, president Nixon took the US off the gold standard and abolished the Bretton Woods monetary system, and that really reshaped the global economy and a lot of the world order. And I’m not saying it will necessarily happen, I just think this news, this big shift in American policy has the potential to be that big of a deal. There are plenty of different ways to look at this news, but given that we’re on an investing show, when I put on my investor hat, if I’m just evaluating this in terms of risk and reward, how to allocate my capital, where to put my resources, frankly, I see this week’s news as the introduction of a lot of new risk. And again, you may think that there’s long-term upside to these types of things. You may think that this is a terrible decision, but regardless of where you fall on that spectrum, the reality is something that I don’t think anyone can argue is that no one has ever seen something like this before.
We live in a globally integrated world with complex supply chains and labor markets, and now the US is intentionally and aggressively, and I know some people might say, Hey, there have been tariffs in the past, and that is totally true. We have tariffs on sun countries right now. They’ve had tariffs on us for a really long time. But if you sort of zoom out, and I encourage you to look at this, if you zoom out, the total tariff burden over the last several decades has really been declining. It’s really just kind of hard to argue that the entire global economy has been shifting towards more free trade and more globalization over the last couple decades. And now we are reversing that the US is intentionally reversing that. And that’s never happened before. We’ve never been in a globally integrated economy before and tried to unintegrated.
So we just need to be honest with ourselves. No one knows exactly how this will play out, and I am sure there’ll be people on YouTube, there’s going to be people on social media who tell you definitively, this is what’s going to happen or this other thing is going to happen. But the only honest answer is we don’t know. There is no precedent. And I think as investors, what we need to accept is that when there is no precedent and we are in a new environment that no one’s really seen before, that means risk. And again, you might think that risk is worth it and that there is upside. Maybe you don’t. But I think it is pretty hard to argue that there are new risks that we all need to think about. We’ve even heard people in the Trump administration say that there are new risks and there is going to be short-term pain that we as investors need to be considering.
I guess the way that I’m thinking about it is that if these tariffs do wind up benefiting the US in the long run, that at the very least will take a long time to happen. And I think that these short-term potential for slower growth, maybe that is a recession, maybe it’s just slower growth, I don’t know. But the potential for slower growth and higher inflation seems pretty high. I’m not sure how big the impact will be, but those things do seem evident because remember, tariffs are taxes on American companies. As a reminder, the people who will be paying these tariffs are the US companies that import goods from other countries, and very often those companies that import goods and are now paying a 25 or 35% tax in some cases are going to pass those costs on to consumers. And that means inflation and higher costs for you and me and the rest of the American society.
Generally speaking, the cost of doing business in the United States just went up or they do whenever these tariffs officially go into place. But it is now more expensive to do business in the United States. And when costs go up that typically historically drags on growth, it usually makes the price of goods and services go up at least on a one-time event. And I do want to clarify that we are saying that tariffs can create inflation. A lot of economists believe that it’s just a one-time inflationary shock. You see prices go up quickly and then it just kind of goes back down to normal levels of inflation. Unlike what we saw in 20 22, 20 23 where we saw it’s kind of a different cause that was from a wage price spiral and supply shock. So that was sort of more this enduring type of inflation. So I just want to call out that some economists, a lot of economists believe that it’s a one-time price shock.
And so although I do think there’s this risk of inflation, there is a good chance that it’s not going to be this long standing inflation like we saw in the 1970s for example. And listen, I know people are going to disagree with me, but I just see risk. I think the broader investor community is seeing risk, right? That’s why we’re seeing this huge sell off in the stock market, and I know the Trump administration is implementing these changes because they believe it will boost American manufacturing. They believe it will reduce our huge trade imbalances, our reliance on other countries and bring jobs back to the us. But if and how that happens is just less clear. We’ve never seen it done before. Just as an example, the tariffs are literally at the highest rate. They’ve been since the 18 hundreds. So yeah, we have had tariffs that high before, but the entire world was obviously very different back then.
The US economy was very, very different back then. Back in the 18 hundreds, about 50% of the US economy came from goods. So you can qualify that somewhat as manufacturing. 50% of it came from services. Fast forward to 2019, only 15% of our economy is based on goods. Now, I understand that the Trump administration is trying to reverse that trend, but what I’m saying is that when we had tariffs on all these goods back in the 19 hundreds, our economy just looked very, very different. So trying to understand what’s going to happen by looking at an economy from the 1890s, honestly, I don’t think that has a lot of utility. I think it’s better as investors to just accept that there is a lot of uncertainty in how this all plays out. I guess just to summarize, regardless of intent, no matter where you fall and whether you think this is a great idea or a terrible idea or you just don’t know, regardless of where you fall, policy changes this big that have no known precedent are risky, right?
They just are. And I think as investors, we need to accept that and build that into our decision-making going forward. Now for me, what am I going to do? I actually posted this on the BiggerPockets Real Estate Channel. You can go check it out last week, but I actually earlier, not necessarily because of Terrace, because I just felt that the stock market was overvalued, I already sold about 25% of my stock portfolio at the beginning of March to reposition and put it into real estate because I’m feeling relatively good about the low volatility and relative low risk of real estate over a long-term hold. You may disagree with me, but if you want to check out what I’m personally doing in my portfolio, I made a video about that on the BiggerPockets channel. We will link to that if you are watching this on YouTube.
But I think the main thing here is, although I’ve been saying that there is risk, which I stand by, the key here in really all investing situation is don’t panic. There is no reason you should be going out and selling your stocks without a plan on what you’re going to do with them. I sold stocks because I knew exactly what I was going to do with them. I was going to put ’em in real estate, and this was a decision that I made over several months of analysis and thinking about it and talking to my wife and my financial advisor. There was a lot that went into that. That wasn’t a panic move, and I really recommend that people take a deep breath. There’s a lot of things going on here. Yes, I think there is more risk in the market right now, but there’s always changes in risk in the economy that is constantly as an investor, that is something that we always need to be evaluating.
So that is my first and best piece of advice. We really don’t know what’s going to happen in the coming weeks. It’s just don’t panic and try and keep a level head. I think my best recommendation at this point is just to do what I always do or what I always recommend for investors is carefully think about resource allocation, evaluate the different options that you have for your money. You can put your money in the stock market, which is a lot cheaper than it was three weeks ago. Maybe you see a lot of reward there. You could put your money in different forms of real estate. If you’re really risk averse right now, you could put your money in bonds or a high yield savings account. They’re actually earning inflation adjusted returns right now. This is what it is to be an investor, right? You have to evaluate the level of risk and reward that you’re comfortable with.
What options, what resource allocation, support your long-term goals and just do that. And that approach doesn’t change whether we have tariffs or we don’t have tariffs. You need to decide for yourself. Do you want to be risk off? Great, go ahead, hold money in cash right now. Want to be risk on go buy stocks while they’re relatively cheap because there are going to be opportunities. Don’t get me wrong when I say there’s risk, I’m not saying that there’s not going to be decent returns in parts of the market. I’m just saying that there’s additional volatility in almost every asset class right now that you need to account for. But if you are comfortable with that risk and you are investing over a long time horizon, there are definitely going to be opportunities. So the worst thing that you can do is panic and do something shortsighted out of fear.
Instead, I advise everyone to sort of zoom out and continue to take a cautious long-term approach to investing, whether that’s in real estate, the stock market, or something else. Alright, that is my take on the enormous economic news of the last week, but I’d love to hear from you all in the comments below. Do you guys agree? Do you think this is as big of a deal as I do? And if so, do you think it’s a good idea or not? I’d love to hear from the entire on the market community, so make sure to comment below. Thank you all so much for watching. I’m Dave Meyer and I’ll see you next time.