President-elect Donald Trump has promised cheap prices for America, but economic policies may not help one embattled part of the economy: the housing market.
Mortgage rates continue to approach 20-year highs, while house hunters face record highs. home prices. The Federal Reserve’s two rate cuts, in September and November, have yet to hit mortgages, which instead rose last month and again hovered near 7%.
That’s 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 on the 10-year US Treasury bond. The latter rose after Trump’s election victory on November 5 due to policy concerns, including rigid rates on US imports, big tax cuts for individuals and businesses, and a crackdown on undocumented immigrants could fuel inflation.
Key questions for the house
Housing affordability is viewed as a top issue in the U.S. by Democrats, Republicans and Independents, according to a May poll from the Bipartisan Policy Center. Difficulty affording housing, as well as the impact of rising rents, are issues that color how voters view the economy leading up to the election, with the cost of living high for many.
“Going forward, the main question is: Are some of Trump’s proposals inflationary or non-inflationary?” Lawrence Yun, chief economist at the National Association of Realtors, told CBS MoneyWatch. “One worrying part is the tariffs – it means imported products will be more expensive, and it will take time for domestic production to increase.”
Trump on Monday promised a 25% tariff on all products from Mexico and Canadaalong with a 10% levy on Chinese goods. Those costs could raise the U.S. inflation rate by nearly 1 percentage point, according to a new Goldman Sachs estimate. Higher inflation could prompt the Fed to slow or even pause rate cuts — another blow to Americans hoping for lower borrowing costs.
Where will mortgage rates go in 2025?
Of course, forecasting mortgage rates is difficult, as many factors affect it. But based on Trump’s economic plan, Yun said he expects the average 30-year fixed mortgage rate to bounce between 6% and 7% next year, and could remain around 6.5% in 2025.
However, he added, there is a risk that mortgage rates could go higher if Trump’s policies prove more inflationary than expected. Higher mortgage rates can add hundreds of dollars to the monthly cost of borrowing.
Another issue is whether Trump’s policies could widen the federal deficit, which increases the debt and also yields on the 10-year Treasury. The nonpartisan Committee for a Responsible Federal Budget forecasts that Trump’s proposals will increase the federal budget deficit by $7.75 trillion over the next decade.
To pay the interest on that debt, the government would have to issue other bonds, such as 10-year Treasurys. This can cause investors to demand a higher yield, or the return they receive for investing in these bonds. When that yield rises, that will drive mortgage rates higher.
“In the first Trump presidency, the average mortgage rate was about 4% to 5%,” Yun said, adding, “We will not go back to the 4% to 5% of the first Trump presidency.”
Will housing be more affordable?
Most Americans report that housing in these communities has become less affordable over the past year, a trend that does not appear to be improving, the Bipartisan Policy Center found.
The median sale price of U.S. homes has fallen slightly over the past year, to about $420,000 in the third quarter from $435,000 a year earlier, according to the Federal Reserve Bank of St. But that’s also higher than the average sale price of $329,000 at the start of 2020, before the pandemic.
Both high housing costs and mortgage rates keep many buyers out of the market. The share of first-time home buyers fell to 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%.
That’s a problem for homebuyers — as well as the country’s overall economic health — because homeownership is key to building personal wealth. People who delay buying a home have fewer years to grow their assets, which can reduce their ability to build a nest egg for their later years.
The wealth gap between homeowners and renters is stark: Homeowners are worth an average of $396,200 in 2022, compared to $10,400 for renters and other non-homeowners, according to the Federal Reserve’s Survey of Consumer Finances.
While mortgage rates may see no relief in 2025, home prices will remain stable, Yun predicted.
“The American way is to buy a house,” he said. “Maybe it’s a little smaller, or it’s not good enough, but then trade until the next front – in terms of buying instead of delaying, the data shows that the owner of the house builds wealth, while the renter spins the wheels.”
contributed to this report.
