Trade Wars Could Be What The Housing Market Needs To Heat Up

As a stock market investor and consumer, I’m disappointed in the new tariffs President Trump has imposed—10% on imports from China and 25% on imports from Mexico and Canada, including a 10% duty on Canadian energy imports (oil, natural gas, electricity). If trade wars persist all year without resolution, corporate earnings could take a 2%-3% hit, which means a similar drop in the S&P 500 or more wouldn’t be surprising.

As expected, the retaliations came fast. Canada’s soon-to-be-gone Prime Minister Trudeau hit back with matching 25% tariffs on $155 billion worth of U.S. imports, targeting alcohol and fruit, which could significantly impact major U.S. exporters.

Meanwhile, Mexico’s President Sheinbaum rejected Trump’s claims about Mexico collaborating with criminal organizations and implemented her own retaliatory tariffs on U.S. goods. She also suggested the U.S. should focus on fighting domestic drug trade and money laundering rather than blaming Mexico.

China’s finance ministry said on Tuesday, Feb 4, it will impose additional tariffs of 15% on coal and liquified natural gas imports from the U.S. and 10% higher duties on crude oil, farm equipment and certain cars, starting Feb. 10, 2025.

This is the classic “standing at a concert” analogy—if one person stands up, the row behind them has to stand up too, leaving nobody better off. Tariff wars tend to follow the same pattern, so the logical outcome is a compromise. The question is: how long will markets have to endure the uncertainty before that happens?

Trade Wars May Boost the Housing Industry

Everyone knows tariffs hurt the global economy, which is why a rational Trump will likely negotiate a compromise. However, with new tariffs on European goods also on the table, it’s unclear how quickly world leaders will reach an agreement before consumer confidence takes a major hit.

Despite the market disappointment, as a real estate investor, I see an upside: trade wars could fuel a housing boom.

If trade tensions escalate, capital should flow from riskier assets like stocks into Treasury bonds, pushing yields lower. If fears of a global slowdown intensify, mortgage rates could drop significantly, improving affordability and spurring demand for housing.

When housing affordability increases, so do real estate transactions, remodeling projects, furniture purchases, landscaping jobs, and mortgage originations. The housing industry is a key driver of the U.S. economy, typically accounting for 15%–18% of GDP. With an existing housing shortage and years of pent-up demand, lower rates could reignite bidding wars nationwide.

President Donald Trump on Thursday, Feb 27, 2025, said his proposed tariffs on Mexico and Canada will go into effect March 4 and that China will be charged an additional 10% tariff on the same date. The sweeping 25% tariffs on imports from Mexico and Canada had been paused on Feb. 3 for one month.

Real Estate As A “Bonds Plus” Investment

I’ve never been big on bonds (~2% of my net worth) because I prefer higher-risk, higher-reward investments. I see real estate as a bond alternative, offering potential appreciation, rent increases, and tax advantages. Over the past 22 years, my real estate holdings have outperformed Treasury bonds and the aggregate bond index, and I expect that to continue.

Of course, owning physical real estate isn’t passive. This past weekend alone, I spent three hours painting my old house after my tenants moved out. Next up: replacing grout, power washing, deck touch-ups, and landscaping the front yard. While I enjoy presenting a great product, the maintenance work takes time away from other pursuits.

As I get older, I find myself naturally shifting toward more online real estate investments and away from physical property ownership. The appeal of a simpler, lower-maintenance life is growing—just like the housing market might if mortgage rates drop.

Taking Advantage of the Stock Market Sell-Off

During his previous term, former President Donald Trump initiated major trade conflicts, most notably with China, starting in July 2018. The U.S. imposed tariffs on approximately $550 billion worth of Chinese goods, while China responded with tariffs on about $185 billion worth of U.S. goods. The tensions caused market volatility before culminating in the Phase 1 trade deal in January 2020, which eased some disputes.

On July 18, 2018, the S&P 500 stood at 2,800 before selling off to 2,485 by December 18, 2018—an 11% decline. However, by January 2020, the market had rebounded to 3,300, delivering an impressive 32% gain. If history repeats itself, a 10%+ correction could present a strong buying opportunity.

Market pullbacks always feel painful in the moment, but they’re nothing new. Since 1950, the S&P 500 has experienced a correction (declines of 10% or more) roughly every 19 months. Since 1980, the average intra-year decline has been 14.3%, making double-digit drops relatively common. Meanwhile, bear markets (declines of 20% or more) occur about once every six years on average.

Given that I'm currently underweight public equities, I’m eager to buy the dip and I did aggressively Monday morning, Feb 3 and the first week of March 2025. But what excites me even more? Buying the dip for my kids—a move I hope they’ll appreciate 10-15 years down the road when they’re in high school or college.

U.S.A. Will Win The War

In a game of chicken, who wins? Obviously, the biggest player with the greatest ability to withstand a collision. I expect other countries to concede to many of our demands if they want to avoid spiraling into a recession.

In 2023, Canada sent 76% of its exports to the United States, accounting for 19% of its GDP. In 2024, Mexico sent 78% of its exports to the U.S., making up 38% of its GDP. Meanwhile, U.S. exports to both Canada and Mexico combined account for only about 2.7% of U.S. GDP. Clearly, Canada and Mexico will need to make concessions—otherwise, their economies will likely slip into recession.

Although stocks will take a hit amid uncertainty, fear, and chaos, real estate will likely thrive as investors seek safety. In fact, bring on the trade wars! As a real estate investor, I welcome lower interest rates and increased demand for housing.

Disclaimer: This is not investment advice to you, only my thoughts about how trade wars can affect different risk assets. Please do your own due diligence and invest according to your risk tolerance and financial goals.

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If you're looking to invest in high-quality residential and commercial real estate, consider Fundrise. Founded in 2012, Fundrise focuses on properties in the Sunbelt region, where valuations are lower and yields are higher.

With a resilient economy and lower interest rates ahead, commercial real estate could be a smart way to diversify your portfolio and generate passive income. Trade wars are a great catalyst for property prices as investors seek to invest in real assets that generate income and provide utility. I've invested $300,000+ in Fundrise and Fundrise is a long-time sponsor of Financial Samurai.

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