Donald Trump's victory in the recent election has stirred uncertainty regarding the future of mortgage rates even before he resumes office. During his campaign, Trump pledged to enhance homeownership affordability by reducing mortgage rates through anti-inflation policies. However, some economists and analysts suggest that his proposed economic agenda might lead to an increase in mortgage rates.
Mortgage rates are influenced by various factors, including movements in the yield for U.S. 10-year Treasury bonds, which serve as a benchmark for pricing home loans. Despite the Federal Reserve's interest rate cut, Treasury yields have risen in recent weeks. The post-election period saw a surge in yields, causing the average rate on a 30-year mortgage to rise to 6.79%.
Trump's proposed policies, such as imposing tariffs on foreign goods, lowering tax rates, and reducing regulations, could potentially boost the economy but also fuel inflation and increase government debt. This, in turn, may lead to higher interest rates and subsequently higher mortgage rates.
The surge in bond yields post-election reflects investor expectations of widening federal deficits and increased inflation. The Committee for a Responsible Federal Budget estimates that Trump's proposals could raise the federal budget deficit by $7.75 trillion over the next decade.
Higher mortgage rates pose challenges for potential homebuyers, particularly first-time buyers, who are likely to face affordability issues. The housing market has seen a decline in sales since 2022, with elevated mortgage rates and high prices hindering homeownership for many.
While the Federal Reserve's actions and inflation trajectory influence the 10-year Treasury yield, the central bank's policy pivot is expected to eventually lead to lower mortgage rates. However, the impact of the next administration's policies on inflation remains a wildcard.
Forecasting mortgage rate trends is complex, given the multitude of factors at play. Housing economists initially anticipated a drop in the average rate on a 30-year mortgage by the end of this year, but post-election projections suggest rates may hover around 6% next year.
Overall, the outlook for mortgage rates remains uncertain, with experts suggesting that rates may not return to the lows witnessed during Trump's first term. The National Association of Realtors estimates that the average rate on a 30-year mortgage will fluctuate between 5.5% and 6.5% during Trump's second term.
In conclusion, the impact of Trump's economic policies on mortgage rates remains a topic of debate, with various factors contributing to the uncertainty surrounding future rate trends.
