Buying a home in 2025 may feel like a roller coaster. If you're trying to buy a home in Santa Cruz—or anywhere in California—you've probably noticed the market feels a little...off. One week, mortgage rates are steady. Next, they're up half a point. And now, with the 2025 U.S. tariff proposals rolling out, things look even more unpredictable.
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These new policies include a 10% baseline tariff on all imported goods, with even higher rates for select countries. While this might sound like a distant issue for economists to debate, it directly impacts your ability to buy a home.
In California, and especially in Santa Cruz County, tariffs are starting to affect everything from mortgage rates to home affordability and construction costs. Let’s break it down—and more importantly, show you how to navigate this shifting landscape.
How Will the 2025 US Tariffs Impact California Real Estate?
Tariffs are taxes on imported goods. That might not sound like it has anything to do with home loans, but it does. Here’s how tariffs affect the market:
- Tariffs increase the cost of building materials (like lumber, steel, and electrical components).
- That pushes up construction costs for new homes.
- Higher home prices lead to higher mortgage amounts.
- And when inflation rises, lenders raise mortgage rates to keep up.
So yes, the impact of import tariffs on California home construction costs is very real, and it directly influences affordability and the kind of mortgage rate you qualify for, among other things.
a) Effects on Affordability and Mortgage Trends
Santa Cruz is no stranger to tight housing supply and high prices. But 2025 is adding a new variable: trade policy. Here's what we’re seeing:
- Higher construction costs = fewer new homes. Builders are pulling back due to rising material prices.
- Inventory remains tight, which supports prices.
- Mortgage rates are inching up, making affordability harder, especially for first-time buyers.
Wondering about the Santa Cruz housing market forecast for 2025? Expect a mixed bag:
- Prices may stabilize but won’t likely drop dramatically.
- Rate-sensitive buyers may pause, while cash buyers continue to compete.
- New construction will likely slow down further unless tariff policies change.
b) Effects on Construction Costs and Mortgage Rates
Let’s zoom out for a moment. The broader California real estate market outlook with new tariffs isn’t rosy. Here’s why:
- Tariffs on imported building materials (especially from China and Canada) are inflating project costs.
- Developers are shelving projects that no longer pencil out.
- Loan values are rising as home prices creep up.
Mortgage Strategies for Rising Home Prices Amid Tariffs
If you’re asking, “How are tariffs impacting housing affordability and mortgage options in Santa Cruz?”, the answer is: By narrowing them. Flexibility is shrinking, which means preparation is more critical than ever. In Santa Cruz, where real estate prices already sit at a premium, even a slight bump in material or labor costs can translate into tens of thousands more on a home’s final price tag. That makes the effect of 2025 tariffs on California housing affordability and mortgage rates impossible to ignore. Let’s talk strategy.
a) Lock in Rates
Trying to time the market is tricky, especially when tariff-related market changes are fueling volatility. But here are a few tips:
- Track trends weekly. Don’t just rely on headlines. Ask your lender for real-time updates.
- Get pre-approved early so you can move quickly when rates drop.
- Consider a rate lock if you’re within 60 days of buying, especially in a market as reactive as 2025.
Still wondering, "When should I lock in a mortgage rate given tariff uncertainty in 2025?" The short answer: As soon as you find a rate you can live with. Rates may fall, but they may rise faster.
b) Choose Wisely Between Fixed vs. Adjustable Rates
Tariffs can quickly shift economic conditions, making choosing between a fixed-rate and an adjustable-rate mortgage (ARM) more critical than ever.
Fixed-rate mortgages: Fixed-rate mortgage plans lock in your interest rate for the entire loan term. It means your monthly payment stays the same—no surprises even if market rates increase. These mortgages are much safer in an unpredictable market.
Adjustable-rate mortgages (ARMs): An adjustable-rate mortgage (ARM) starts with a lower fixed rate for a set period and then adjusts periodically based on market rates, meaning your monthly payment could go up or down over time.
- Start with lower rates but can adjust upward (often significantly).
- Riskier if rates keep climbing.
Bottom line: Fixed might be the safer bet if stability is your priority. With 2025's tariff uncertainty, a fixed-rate mortgage gives you predictable payments—no surprises if rates keep climbing.
Tips for First-Time Homebuyers
If this is your first home buying, don’t panic—prepare. Check out these strategies for first-time homebuyers in Santa Cruz with rising tariffs and mortgage rates:
- Work with a local lender who knows the Santa Cruz market.
- Ask about mortgage options designed for rising-rate environments.
- Boost your credit score to access better loan terms.
- Shop different lenders. Rates and fees can vary more than you think.
- Look into state and county down payment assistance programs.
- Consider FHA or VA loans with competitive interest rates.
- Lock your rate during escrow to avoid surprises.
Managing Mortgage Payments During Tariff-Driven Inflation
Many Santa Cruz homebuyers are asking, 'How can I manage mortgage payments with rising tariffs affecting home prices?' The good news is that there are proven strategies working right now. Based on current market conditions, here are the most effective approaches:
Immediate Stability Options
- Fixed-Rate Refinancing: One of the best mortgage strategies for rising home prices is refinancing. With today's average 30-year fixed rate at 6.875% (7.071% APR), refinancing from an ARM can provide payment certainty. While savings vary, this remains a popular choice for budget predictability.
- Term Extension: Moving to a 40-year mortgage reduces monthly payments but increases total interest. Carefully compare short-term relief versus long-term costs.
Purchase Strategies for New Buyers
- Larger Down Payments: Aim for 20%+ to avoid PMI and reduce loan amounts. Private Mortgage Insurance (PMI) is an extra monthly fee that lenders charge when your down payment is less than 20% because they see the loan as riskier. Even small increases (from 10% to 15%) can significantly lower payments.
- Conservative Buying: Purchasing below maximum approval amounts creates a financial buffer for future rate adjustments.
Payment Optimization
- Biweekly Payments: One great strategy for managing mortgage payments during tariff-driven inflation is biweekly remittances. Instead of making one full monthly mortgage payment, you make half of your mortgage payment every two weeks. Since there are 52 weeks in a year, that adds up to 26 half-payments, which is the same as making 13 full monthly payments (26 / 2 = 13). You're making one extra monthly payment over the year but spreading it out so it doesn't feel like a considerable extra expense each month.
- Rate Buydowns: Rate buydowns let you pay an upfront fee to lower your interest rate temporarily or permanently, like paying now to save on every future mortgage payment. While temporary (2-1 buydowns) or permanent options exist, calculate break-even points carefully given current rates.
Financial Safety Nets
- Modification Programs: During the COVID-19 pandemic, many mortgage lenders offered special programs to help homeowners who were struggling financially (like delaying payments or changing the loan terms). Although the pandemic has eased and those specific programs are going away, if the new tariffs cause harsh financial difficulties for homeowners (e.g., job loss due to economic slowdown), lenders might offer other ways to help. It's not guaranteed, but it's a possibility to explore.
- 5-Year Budget Planning: When planning your budget to buy a home or deciding the best time to buy a home in Santa Cruz or elsewhere, don't just calculate your mortgage payments based on today's interest rates. Interest rates can change, especially with the economic uncertainty caused by tariffs. To be safe, calculate what your payments would be if the interest rate were 1% or 2% higher than it is now. This can help you see if you can still afford the house if rates increase.
Market Monitoring
- Refinance Watch: Tariffs can create economic uncertainty, often leading to fluctuations in interest rates. If rates drop to a level that is 1% lower than what you're currently paying on your mortgage, consider refinancing. Refinancing is like hitting the reset button on your home loan - but smarter. It replaces your existing mortgage with a new one at current rates, potentially lowering monthly payments and overall loan costs.
Note: Tariff impacts typically take 9-18 months to fully affect mortgage markets. Consulting a skilled realtor or HUD-approved housing counselor can provide personalized strategies for your situation.
FAQs
- Q: Will tariffs cause mortgage rates to increase or decrease in 2025?
- A: Most likely, increase. Higher tariffs often fuel inflation—and lenders raise rates to keep up.
- Q: What are the best strategies to navigate rising mortgage rates due to tariffs?
- A: Lock in your rate early
- A: Choose a fixed mortgage if stability is your goal
- A: Reduce your loan size by increasing your down payment
- Q: What impact do tariffs have on housing affordability in Santa Cruz and California?
- A: Big. The impact on housing affordability is felt through higher prices, more expensive loans, and fewer entry-level homes being built.
- Q: How do tariff-induced fluctuations in the bond market impact mortgage rates?
- A: Mortgage rates track the 10-year Treasury bond. Tariff news often spooks bond investors, which can increase yields (and mortgage rates). That’s the link between tariff-induced bond market fluctuations and your mortgage.
- Q: What are the current trends in mortgage rates due to tariff announcements?
- A: As of early 2025, we’re seeing slight upticks. The current trends in mortgage rates due to tariff announcements show upward movement, especially after each trade update.
Navigating mortgage fluctuations amid 2025 US tariffs doesn’t have to be overwhelming. With the right tools—and the right people—you can still make smart, empowered decisions.
Are you looking to buy in Santa Cruz? Let’s discuss strategy.
Paul Burrowes, CRS, CCEC, SFR, NHCP, LHC, REALTOR®
Paul Burrowes, CRS, CCEC, SFR, NHCP, LHC, REALTOR® Licensed REALTOR® with over 15 years of experience and expertise. Commits to being on time and transparent. Acts as your consultant to ensure you make the best decisions to fit your transaction at every step in the process. Negotiates towards a low-stress, win-win outcome. Handles all the details for you, ensuring the hundreds of steps in your real estate transaction go smoothly. Proudly serving Silicon Valley, Santa Cruz, Monterey, and Santa Clara Counties! | DRE# 01955563 | (831) 295-5130 | paul@burrowes.com.
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