• The housing market has been losing momentum, with inventories rising to 2011 highs. 
  • A mismatch between residential-real-estate activity and the rest of the economy may be worsening the slowdown. 
  • Wage growth could help bridge the disconnect.

From rising prices to the new tax law, economists say there are a number of conditions contributing to a slowdown in the US housing market. But there may also be a less tangible factor at play: uncertainty. 

The economy is humming, with unemployment at multi-decade lows and signs of upward pressure on wages. Alongside these robust metrics, however, consumers are watching home inventories rise to the highest level in years.

“Usually, consumers are used to seeing the housing market perform in tandem with the economy,” said Jonathan Miller, an appraiser, and market analyst. “But what’s been especially confusing over the last year and a half or so is that they seem to be disconnected.”

Declines in residential construction activity and foreclosure rates have led to historic housing shortages across the country in recent years. Together with rising rates, an increasing number of Americans have been priced out of the market.

Meanwhile, analysts say the tax overhaul passed last year isn’t helping. By curbing mortgage-interest deductions and placing a $10,000 cap on state and local tax deductions, it wipes out previous provisions that were designed to encourage Americans to own homes.

That could be especially discouraging for Americans living in states with high taxes and expensive housing markets, like New York and California. A recent Bank of America Merrill Lynch survey found affordability was lowest in the Northeast and the West, with consumers reporting less favorable buying sentiment in those regions than in the Midwest and the South.

“This isn’t too surprising given the growing gap between what homebuyers can afford and where home prices stand today,” BAML said. “What’s clear in the responses is that consumers believe the housing market has favored the seller this year.”

Tariffs are adding to uncertainty, according to Miller, with inflationary pressures and shifting business activity raising questions about market value. The Trump administration has placed tariffs on more than $300 billion worth of imports, prompting retaliatory measures from the US’s closest trading partners.

“It’s almost like a wet blanket, where the consumer is somewhat confused and they’re taking a breath,” Miller said. “The sense of urgency is not there in the market.”

An increasingly tight labor market could help bridge the disconnect. There have been signs Americans could soon begin seeing pay rates increase as companies compete for employees. But real wage growth has been relatively sluggish for a while, increasing at about 2.9% on average over the past year. 

“One of the missing equations over the past decade has been wage growth,” Miller said. “If you look at wage growth with inflation factored in and then at housing prices, there’s a big disconnect.” 

Housing Graph