Thursday, November 14, 2024

Trump’s economic agenda for his second term is clouding the outlook for mortgage rates

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LOS ANGELES (AP) — Donald Trump’s election win is clouding the outlook for mortgage rates even before he gets back to the White House.

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 U.S. 10-year Treasury bonds, which lenders use as a guide to price home loans. Treasury yields rose in recent weeks even after the Federal Reserve cut its benchmark interest rate, which influences rates on all types of loans including mortgages. Investors appeared to question how far the Fed should cut rates given the strength of the economy.

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 Freddie Mac.

“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 Danielle Hale, chief economist at Realtor.com. “So, if overall rates are higher, that would tend to also mean that mortgage rates would move higher, too.”

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 U.S. government debt — and, say some economists, lead to higher interest rates and in turn higher mortgage rates.

“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 Lisa Sturtevant, chief economist with Bright MLS, who no longer forecasts the average rate on a 30-year home loan to dip below 6% next year.

Homebuilding sector analysts at Raymond James and Associates see mortgage rates remaining “higher for longer,” given the outcome of the election. They also said in a research note last week that first-time homebuyers “are likely to face even greater affordability challenges this spring,” typically the peak sales season of the year for homebuilders.

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 July 2023 and last June, a historic low going back to 1981, according to data from the National Association of Realtors. Prior to 2008, the share of first-time buyers had historically been 40%.

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