China’s Big Influence on the US Housing Market
Udumbara
As the tariff negotiations between Washington and Beijing continue, there are reasons to be hopeful. The Trump administration’s tariff policy certainly got both sides to the table, and both countries agreeing to a 90-day pause while drastically lowering tariffs during talks is a great start. It buys time to find some middle ground that benefits both nations.
The Tariffs Were Justified
First, the high tariffs against Chinese goods were justified. The U.S. trade imbalance with China remains in the $300 billion range, and the regime’s intellectual property theft from American companies and institutions is up to $600 billion ... per year. Since being admitted into the World Trade Organization in 2000, China has been unwilling to follow the rules or change its behavior, which is what prompted the tariff hikes by the Trump administration. What’s more, China has been seeking to avoid tariffs by routing goods through third countries that are not subject to tariffs.Beijing’s Building Materials Card
It would seem that Washington holds all the cards, but Beijing has a couple of its own that could provide it with significant influence over the U.S. housing market.For instance, China is a significant source of U.S. building materials, which impacts housing affordability and supply. If the high tariffs return, it could increase builder costs anywhere from $7,500 to $10,000 per home, according to Rob Dietz, chief economist at the National Association of Home Builders (NAHB), citing estimates from U.S. homebuilders. The greatest impact will be from lumber cost increases, which are expected to total about $4,900 per home on average, according to Leading Builders of America.
Building material prices have already risen by 34 percent since December 2020, outpacing general inflation, according to the NAHB.
US Housing Shortages Could Rise
In fact, housing industry experts predict a 10 percent to 15 percent price increase per house, making new homes less affordable, especially in markets like Raleigh, North Carolina, where construction is booming but affordability is already strained.Rising building costs may be the difference between smaller builders staying in business and going into insolvency. As smaller homebuilders around the country leave the market, the housing supply will tighten even further and push prices higher.
Beijing’s Financial Cards
Beijing also has a couple of financial cards to play. For instance, as of January 2025, China holds $1.32 trillion of U.S. mortgage-backed securities (MBS), comprising 15 percent of the total outstanding foreign ownership, according to Ginnie Mae, but owns less than it used to.In September 2024, China had already reduced its MBS exposure by 8.7 percent year-over-year, and another 20 percent by early 2025. If this sell-off continues, it could destabilize the mortgage market by driving down demand and driving up rates. It could be compounded by the U.S. Federal Reserve’s decision to let MBS roll off its balance sheet, reducing support for low rates compared to its COVID-19 pandemic-era purchases.
If China accelerates its MBS divestment, it may well send shockwaves through the global investor community, widening the spread between U.S. Treasury and MBS yields and pushing mortgage rates higher.
However, in addition to MBS, some sources estimate that China holds an estimated $1.1 trillion in U.S. Treasury bonds. A large-scale sell-off of U.S. Treasuries by China could further increase yields, raising borrowing costs.
US Housing Crash Unlikely
Despite these pressures, a housing crash characterized by widespread price declines and foreclosures is unlikely in 2025. Several factors minimize that risk.For example, the U.S. housing inventory is low, and supply shortages continue to temper price drops, even as demand softens. Plus, unlike the 2008 subprime crisis, current lending guidelines adhere to stricter Ability-to-Repay rules under Regulation Z, which lowers the risk of lending to unqualified borrowers.
What’s more, even though tariffs may fuel inflation and potentially delay interest rate cuts by the Federal Reserve, consumer confidence remains solid. A full-blown recession has not yet manifested, even with the tariff shocks.
Finally, as noted, China is unlikely to dump all of its U.S. MBS and/or Treasurys because doing so would harm its own financial interests.
However, the housing market still faces significant challenges. Even moderate price hikes from tariffs could continue to slow sales. If current financial behaviors and trade trends persist, it could even cause the market to stagnate.
It’s neither a coincidence nor an exaggeration to point out that China holds some cards, from housing costs to MBS and Treasury bond divestment, that certainly add another layer of risk and uncertainty to the tariff negotiations and the U.S. housing market.
