Newly elected President Donald Trump has promised low prices For Americans, but his economic policies may not help a troubled part of the economy: the housing market.
Mortgage rates remain near 20-year highs as home hunters approach record highs House pricesThe Federal Reserve's two rate cuts in September and November have not had an impact on mortgages, which have climbed over the past month and are hovering again near 7%.
This is because mortgage rates are based on a number of factors beyond the Fed's benchmark rate, including the strength of the US economy and changes in the yield for the US 10-year Treasury bond. Concerns increased after Trump's November 5 election victory, including his policies harsh tariffs Big tax cuts on US imports, for individuals and businesses, and a crackdown on undocumented immigrants could increase inflation.
An important question for housing
As of May 1, housing affordability is viewed as a top issue within America by Democrats, Republicans, and Independents alike. voting From the Bipartisan Policy Center. The difficulty of purchasing a home, as well as the impact of rising rents, are issues that shape how voters viewed the economy in the election, with the high cost of living top of many minds.
“Going forward, the key question is: Are some of Trump's proposals inflationary or non-inflationary?” Lawrence Yun, chief economist for the National Association of Realtors, told CBS MoneyWatch. “One worrying part is the tariffs – that means imported products will be more expensive, and it may take time for domestic production to ramp up.”
Trump promised to impose 25% tariff on all products on Monday from mexico and canadaAlso 10% levy on Chinese goods. These costs could raise the US inflation rate by about 1 percentage point, according to a new estimate from Goldman Sachs. Higher inflation in turn could prompt the Fed to slow or even stop its rate cuts — another blow to Americans hoping for lower borrowing costs.
Where will mortgage rates go in 2025?
Of course, mortgage rates are difficult to predict, given the number of factors that affect them. Yet based on Trump's announced economic plans, Yun said he thinks the average 30-year fixed mortgage rate will jump to between 6% and 7% for the next year, and around 6.5% for most of 2025. Can stay.
But, he added, there is a risk that mortgage rates will rise even higher if Trump's policies prove more inflationary than expected. Higher mortgage rates can add hundreds of dollars to monthly costs for borrowers.
Another issue is whether Trump's policies could increase the federal deficit, which affects borrowing as well as the yield on the 10-year Treasury. The non-partisan Committee for a Responsible Federal Budget estimates that Trump's proposals would increase the federal budget deficit by $7.75 trillion over the next decade.
To pay the interest on that debt, the government would probably have to issue more bonds, such as 10-year Treasuries. This may lead investors to demand higher yields, or the return on investment in bonds. As yields rise, mortgage rates will rise.
“During Trump's first presidency, the average mortgage rate was about 4% to 5%,” Yun said.
Will housing become more affordable?
Most Americans report that housing has become less affordable in their communities over the past year, a trend they don't see improving, the Bipartisan Policy Center found.
The average sales price of U.S. homes has declined slightly over the past year, falling to about $420,000 in the third quarter from $435,000 a year earlier, according to the Federal Reserve Bank of St. Louis. But it's also significantly higher than the average sales price of $329,000 in early 2020, just before the pandemic.
The double whammy of high home costs and mortgage rates is driving many buyers out of the market. Share of first time home buyers dropped 24% in 2024, the lowest since 1981, when the National Association of Realtors began tracking the metric. Before 2008, the share of first-time buyers was historically 40%.
This is a problem for prospective homebuyers – as well as for the overall economic health of the country – because home ownership is the key to building personal wealth. People who delay purchasing a home have fewer years to grow their wealth, which may result in less ability to build a nest egg for their later years.
The gap in wealth between homeowners and renters is stark: the median net worth of homeowners in 2022 was $396,200, compared to $10,400 for renters and other non-homeowners. According For the Federal Reserve's Survey of Consumer Finances.
Yoon predicts that although mortgage rates won't see much relief in 2025, home prices are likely to remain stable.
“The American way is to buy a house,” he said. “It may be a little smaller, or not entirely ideal, but then trade up to the next home – in the case of buying rather than delaying, data shows that homeowners make wealth, while renters. Spinning your wheels.”
Contributed to this report.