Trump's economic agenda for his second term is clouding the outlook for mortgage rates
The president-elect campaigned on a promise to make homeownership more affordable by lowering mortgage rates through policies aimed at knocking out inflation. But his proposed economic agenda could potentially set the stage for mortgage rates to move higher, some economists and analysts say.
Mortgage rates are influenced by several factors, including moves in the yield for
Then yields surged further immediately after Trump’s victory, sending the average rate on a 30-year mortgage up to 6.79%, according to mortgage buyer
“Given what we’re seeing in bond markets, investors are expecting higher rates under a Trump administration and are starting to position in that direction already,” said
Trump says he wants to impose tariffs on foreign goods, lower tax rates and lighten regulations, policies that could rev up the economy, but also fuel inflation and increase
“Trump’s fiscal policies can be expected to lead to rising and more unpredictable mortgage rates through the end of this year and into 2025,” said
Homebuilding sector analysts at
Higher mortgage rates can add hundreds of dollars a month in costs for borrowers, reducing their purchasing power at a time when home prices remain near record highs despite a housing market sales slump dating back to 2022.
Elevated mortgage rates and high prices have kept homeownership out of reach for many first-time buyers. They accounted for just 24% of all homes purchased between
As more Americans are priced out of homeownership or have to delay buying a home, they're missing out on potential gains from home equity growth, which have historically been a strong driver of personal wealth.
What’s more, higher mortgage rates can discourage current homeowners from selling. While the average rate on a 30-year home loan has come down from a 23-year high of nearly 8% last year, it remains too high for many potential sellers. More than four in five homeowners with a mortgage have an existing rate below 6%, according to Realtor.com.
The surge in bond yields last week likely reflects expectations among investors that Trump’s proposed economic policies would widen the federal deficit and crank up inflation.
The nonpartisan Committee for a Responsible Federal Budget forecasts that Trump’s proposals would increase the federal budget deficit by
To pay interest on that debt, the government will likely have to issue more bonds, like 10-year Treasurys. That could lead investors to demand higher yields, or the return they receive for investing in the bonds. As those yields go up, that would push mortgage rates higher.
If inflation were to heat up again, the Fed may have to pause the rate cuts it began in September. Inflation has fallen on an annual basis from a 9.1% peak in 2022 to a 3 1/2-year low of 2.4% as the Fed raised rates to the highest level in decades.
While the central bank doesn’t set mortgage rates, its actions and the trajectory of inflation influence the moves in the 10-year
“The general expectation is still there are a lot of reasons to expect that mortgage rates could come down, but policy is a pretty big wildcard,” said Hale of Realtor.com.
Forecasting the trajectory of mortgage rates is difficult, given that rates are influenced by many factors, from government spending and the economy, to geopolitical tensions and stock and bond market gyrations.
Leading up to the election, housing economists had generally expected the average rate on a 30-year mortgage to drop through the end of this year to around 6% and then ease further next year. Now, economists at the
Redfin's head of economic research,
The
“If the Trump administration can lay out a credible plan to reduce the budget deficit, then mortgage rates can move downward,” said
Regardless, don’t expect mortgage rates to return to the lows they hit during Trump’s first term, which started in late
Back then, the average rate on a 30-year mortgage ranged from a record-low of 2.65% to 4.94%. Mortgage rates fell sharply in the last year of Trump’s first term as the economic fallout from the COVID-19 pandemic led investors to seek the safety of
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