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MortgagePoint » Your Trusted Source for Mortgage Banking and Servicing News 20 July 2025 C O V E R S T O R Y was for about 0% growth for the year, and our expectation for the consumer price index inflation was above 4%. Since then, you've had various itera- tions of walk-backs on different aspects of the tariff proposal and potential legal challenges, which could lead to different results. Now we're looking for economic growth for the full year of a little less than 1%. That lines up with the way financial markets have reacted to the tariff proposal changes. The residual impact of the tariff pro- posals is high levels of uncertainty. People don't know where this tariff rate is going to wind up and don't know how long this trade war is going to continue. I would expect that we're going to start seeing in the data evidence of people pausing for a bit as they're waiting to see the direction of tariff and economic policy. We are seeing both households and businesses trying to make decisions, to try to get the best price they can. We saw a huge flood of imports in the fourth quarter of 2024, which stopped in the first quarter and started bouncing back in the second quarter. In our sector, the largest impact will likely be in the construction of new homes. The tariffs on lumber, steel, and aluminum are the ones that are going to most directly impact the cost. There are estimates that the incremental cost of new homes will increase by $8,000- $20,000 as a result of the tariffs. I don't think you're going to see people be able to time the purchase to get around the tariffs. Different players across the sector are bearing those costs right now. In some cases, the increased costs are being passed on to the end consumer. In other cases, the builders and taking on some of the increased costs; in some cases, the suppliers are absorbing some of the increase. Over the next couple of years, if these tariff rates are increased as much as has been indicated, it's all going to be passed through to the home buyer because, whether it's the builder or the supplier, their margins can't take that kind of a hit for an extended period. Mark Fleming: While the Federal Reserve remains in wait-and-see mode, mortgage rates have stayed between 6.6 and 7% all year. Assuming at most two rate cuts this year, which is not a foregone conclusion, it's foreseeable that mortgage rates will remain in this range or at best only go modestly lower. It's reasonable to expect the housing market to acclimate to mortgage rates in the mid-sixes, which is historically a very normal level. Fratantoni: The Federal Reserve con- trols a short-term overnight rate, which is only indirectly impacting mortgage rates that have been on hold over the course of this year. We expect two rate cuts of a quarter point this year. AEI's Ed Pinto on The Power of Lot Size & Light- Touch Density Zoning Ed Pinto: At AEI, we've coined the three most important things in affordability: small lots, small lots, small lots. It all comes down to small lots. If you have a smaller lot, it's less land, so it costs less. Secondly, the house is going to be smaller, which means less square footage, which means a lower price. Three, when you shift into a townhome on an even smaller lot, even though it has about the same square footage, you have fewer windows, fewer exterior walls, and it's a simpler construction. A townhome of 1,400 square feet, even beyond the land, costs less to build per square foot by 15% or more than the same-sized single-family detached house of 1,400 square feet at the same location but on a larger lot. In Texas, in 1998, Houston passed an ordinance that reduced the minimum lot size in a roughly 100-square-mile The residual impact of the tariff proposals is high levels of uncertainty. " —Michael Fratantoni, Chief Economist and SVP of Research and Industry Technology, Mortgage Bankers Association Edward Pinto, Senior Fellow and Director, AEI Housing Center