As Donald Trump prepares for his second term as president, his economic policies are already sending ripples through the housing market. While Trump’s campaign promises include making homeownership more affordable, his proposed economic agenda could have the opposite effect, potentially pushing mortgage rates higher. Here’s an in-depth look at how his plans might impact mortgage rates and the broader housing market.
Trump’s Economic Agenda: Potential for Higher Mortgage Rates
Trump’s proposed economic policies could lead to increased mortgage rates, despite his campaign promises of affordability. One key factor driving this shift is his emphasis on tax cuts, tariffs on foreign goods, and lighter regulations. While these moves could stimulate the economy, they might also lead to inflation and an increased federal debt, both of which can drive mortgage rates higher.
The Role of Treasury Yields in Mortgage Rates
Mortgage rates are heavily influenced by U.S. 10-year Treasury yields, which serve as a benchmark for lenders setting home loan rates. Recently, these yields have risen, even as the Federal Reserve cut its benchmark interest rate. This signals that investors are anticipating higher rates under the new administration, with the 30-year mortgage rate climbing to 6.79% after Trump’s victory.
Danielle Hale, Chief Economist at Realtor.com, explains, “If overall rates are higher, that would tend to also mean that mortgage rates would move higher, too.” This increase in mortgage rates could present challenges for both homebuyers and homeowners looking to sell.
Impact on First-Time Homebuyers and the Housing Market
Higher mortgage rates pose significant hurdles for first-time homebuyers, who are already facing affordability issues due to high home prices. As mortgage rates rise, the cost of borrowing increases, further diminishing purchasing power and making homeownership out of reach for many.
According to the National Association of Realtors, first-time buyers made up just 24% of all home purchases in 2023—well below the historic norm of around 40%. This could result in fewer buyers entering the market, slowing down sales and creating additional challenges for homebuilders, particularly during the busy spring season.
The Potential Long-Term Effects on Homeownership
While higher mortgage rates discourage home purchases, they also discourage current homeowners from selling. Many homeowners with mortgages below 6% are unwilling to sell in a market where new buyers face higher rates. This “lock-in effect” could lead to a further decrease in inventory, exacerbating the affordability crisis for potential buyers.
Additionally, the surge in bond yields and expectations of rising inflation could lead to even higher mortgage rates, making homeownership less attainable for many Americans. These challenges might prevent prospective buyers from building wealth through homeownership, as the opportunity for equity growth becomes less accessible.
The Unpredictability of Mortgage Rate Forecasts
Despite the general expectation of higher mortgage rates, there is still some uncertainty in the market. Analysts and economists had previously forecasted mortgage rates to fall below 6% by the end of 2024, but Trump’s proposed fiscal policies are shaking up those predictions.
Economists now predict that mortgage rates will hover around 6% throughout 2025, with some experts like Chen Zhao from Redfin suggesting that rates could dip below 6% only if the economy enters a recession. In contrast, the National Association of Realtors estimates that mortgage rates will fluctuate between 5.5% and 6.5% during Trump’s second term.
Conclusion: Navigating the Uncertain Mortgage Landscape
Trump’s second term presents a significant challenge for the housing market, particularly for prospective homebuyers. While his economic policies could spur economic growth, they also risk driving inflation and increasing mortgage rates, making homeownership more difficult to attain.
As we move into 2025, expect mortgage rates to remain volatile, influenced by both domestic fiscal policies and global economic conditions. For now, it’s essential for homebuyers and sellers to keep a close eye on economic developments and mortgage trends to navigate the evolving housing market effectively.