Donald Trump’s election to a second presidency can be seen as a direct response to the cost-of-living crisis, with unaffordable housing at the heart of American discontent. Consider this: high home prices and mortgage rates reaching levels not seen since the financial crisis left nearly a third of Americans unable to achieve the dream of homeownership. This situation sheds light on why consumer sentiment surveys and political polls reflected such dissatisfaction with the economy, despite cooling inflation statistics and booming stock markets alongside rising GDP.
The initial indicators from the mortgage and bond markets do not appear promising in this regard. President Trump will need to significantly temper his agenda to align with voters’ expectations.
Even under such circumstances, achieving his commitment to reduce mortgage rates to 3% or lower seems unlikely without a substantial economic downturn.
President-elect Donald Trump’s policies are likely to have a significant impact on mortgage rates in 2025, with several factors potentially pushing rates higher than previously expected. Here’s how Trump’s proposed policies could affect mortgage rates:
Trump’s economic agenda, particularly his proposed tariffs and immigration policies, is raising concerns about inflation. The president-elect has pledged to impose a 25% tariff on products from Mexico and Canada, and a 10% levy on Chinese goods. These tariffs could boost the U.S. inflation rate by almost 1 percentage point, according to Goldman Sachs estimates. As a result, Federal Reserve officials have expressed increased concern about upside risks to inflation, citing potential changes in trade and immigration policy.
Higher inflation could lead the Fed to slow or pause its rate cuts, potentially keeping mortgage rates elevated.
Trump’s fiscal policies may expand the federal deficit, which could also impact mortgage rates. The Committee for a Responsible Federal Budget projects that Trump’s proposals could increase the federal budget deficit by $7.75 trillion over the next decade. To finance this debt, the government may need to issue more bonds, including 10-year Treasuries.
And increased bond issuance could lead investors to demand higher yields, which would also push mortgage rates up.
Given the aforementioned factors, experts are adjusting their forecasts for mortgage rates in 2025 as some analysts no longer expect the average 30-year mortgage rate to fall below 6% in 2025. Realtor.com’s 2025 housing forecast predicts average mortgage rates will drop slightly from 6.3% to 6.2% by the end of the year while Fannie Mae predicts rates will remain above 6% in 2025. Redfin forecasts an average of 6.8% for the 30-year fixed rate throughout 2025 and the National Association of Realtors projects rates to range between 5.5% and 6.5% during Trump’s second term.
HousingWire forecasts a range between 5.75% and 7.25% for 2025.
As of January 10, 2025, the average 30-year fixed mortgage rate is around 6.70%. This is significantly higher than the historic lows seen during Trump’s first term, when rates dropped below 3% amid the COVID-19 pandemic.
Trump’s policies are certainly introducing uncertainty into the mortgage rate outlook.
Lisa Sturtevant, chief economist at Bright MLS, predicts Trump’s fiscal strategies could cause mortgage rates to become more volatile through the end of 2025.
Not surprisingly, the Federal Reserve’s response to Trump’s policies will be crucial in determining the direction of mortgage rates.
Takeaway: While Trump has promised to make homeownership more affordable by lowering mortgage rates, his economic policies may inadvertently push these rates higher. The actual impact will depend on how these policies are implemented and how they interact with broader economic factors.