Trump’s Presidency Spells Trouble for Housing Market
The housing market is bracing for a tough ride ahead, courtesy of Donald Trump’s presidency. Before his election, Redfin Corp. predicted mortgage rates would average 6.1% next year. However, just three days after the election, they revised their estimate upward to 6.8%, a significant jump from today’s high levels.
The Trump Effect
“The difference is Trump,” says Daryl Fairweather, chief economist at Redfin. The market is pricing in the possibility of tariffs and other policies that could drive up borrowing costs. This uncertainty has already pushed mortgage rates above 7% in some cases.
Economists Sound the Alarm
Economists are warning that higher-for-longer borrowing costs will make it difficult for homebuyers to find affordable options. “There was a view that rates would gradually fall, but that no longer seems to be the case,” says Thomas Ryan, North America economist at Capital Economics. As a result, the housing market is likely to remain frozen for longer than expected.
Tariffs and Inflation
Trump’s proposal for tariffs on imports and Chinese goods could lead to inflation, as companies pass on cost increases to consumers. This, combined with potential tax cuts, could drive up the US deficit and push long-term rates even higher.
Labor Shortage Worsens
Trump’s plan to deport millions of undocumented immigrants could exacerbate the nation’s housing shortage. With a smaller labor force for the construction industry, it would be difficult to build new homes, making costs even more expensive.
Federal Reserve Under Pressure
The Federal Reserve will likely be influenced by Trump’s economic policies. While the Fed’s decisions on short-term interest rates don’t directly set mortgage rates, monetary policy does have some influence. Mortgage rates closely follow yields on 10-year Treasuries, which are affected by market expectations for inflation and economic growth.
Gloomy Outlook
Capital Economics expects higher rates to be another setback for buyers, causing a home-sale recovery to be even shallower than expected. Mortgage rates will likely stay high around 7% in 2024 and drop only a quarter point by the end of 2025.
Buyers Face Uncertainty
For buyers, the picture remains uncertain. High borrowing costs have weighed on shoppers, fueling a drop in contracts to buy previously owned homes. While prices held up in October, homes stayed on the market for about a week longer than a year ago.
A Glimmer of Hope
Despite the uncertainty, some consumers are feeling more confident to forge ahead. Real estate agents are reporting an increase in potential buyers and sellers since the election. Buyers are still waiting for a good deal, and if higher borrowing costs slow the market, that could help spur more deals.
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