A second term for President Donald Trump would likely have distinct effects on U.S. economic growth, tax reforms, and housing regulation. Depending on the administration policies enacted, his approach could make homeownership more accessible or challenging.
In this article, we will discuss the forecast for post-election mortgage rates for re-elected President Trump.
Federal Reserve’s Influence on Interest Rates
Trump has previously been critical of the Federal Reserve, favoring lower interest rates to spur economic growth. Since he was re-elected, Trump might continue advocating for looser monetary policy.
However, the Federal Reserve, led by Jerome Powell, maintains independence, meaning it’s not bound by political influence. Although Trump could appoint new members sympathetic to his views, the Fed’s approach largely depends on inflation and employment metrics. For example, if the post-election mortgage rates go from 7% to 10% due to inflation, your monthly payments would increase, making it harder to afford new homes.
Tax Cuts and Fiscal Impact on Post-Election Mortgage Rates
During his previous term, Trump implemented the Tax Cuts and Jobs Act (TCJA), which lowered individual and corporate tax rates. If he were to extend these cuts or introduce similar tax policies beyond their current expiration date in 2025, it might stimulate economic growth by increasing disposable income. As federal spending increases, the government may need to issue more Treasury bonds to finance the budget deficit, pushing up post-election mortgage rates as investors demand higher yields (interests) to offset the increased inflation risk
For example, Sarah, a homeowner, benefits from lower taxes under TCJA, which gives her more monthly income. If Trump extends these cuts, she will continue enjoying this extra money, allowing her to spend more. However, the government may need to borrow more, issuing Treasury bonds at higher post-election mortgage rates to attract investors. This, in turn, could raise interest rates, increase Sarah’s monthly payments, or make borrowing more expensive for future buyers. So, while Sarah benefits from tax cuts, rising post-election mortgage rates could still take away her money.
Deregulation in the Market
Trump’s approach to regulatory oversight has been generally laissez-faire, aiming to reduce government intervention. In his first term, Trump reduced oversight by agencies like the Consumer Financial Protection Bureau (CFPB), which loosened mortgage lending standards, allowing more Americans to qualify for home loans. While this can boost access to homeownership, it also raises the risk of defaults, especially if underwriting standards are lowered. This means that if people with lower credit scores or unstable incomes are approved for loans, they may be unable to sustain them, with a chance of missing payments.
If Trump continues along this path, mortgage credit could become more accessible, especially for first-time buyers, but at the potential cost of greater market risk like looser lending practices contributing to the 2008 housing crisis (Nunez, 2024). The increased demand for easier access to loans could drive up home prices, particularly post-election mortgage rates, challenging affordability and financial stability.
Limited Housing Affordability
Trump has expressed interest in addressing housing affordability, yet the policies he champions tend to contribute to higher costs indirectly. While his administration might incentivize developers to increase housing supply through tax credits, it is still being determined if these incentives would effectively address the housing shortage.
Rising post-election mortgage rates and regulatory changes favoring lenders could make it harder for the average American, like a young couple, Emily and Alex, to afford a home, especially in high-demand urban areas. Although regulatory adjustments might make it easier for lenders to approve loans, increased competition for a limited home supply could drive higher post-election mortgage rates. The lack of sufficient housing means affordability remains a challenge. As a result, families like Emily and Alex might still find homeownership out of reach despite efforts to market access.
Privatization of Mortgage Giants
Previously, Trump also promoted the privatization of Fannie Mae and Freddie Mac, government-sponsored enterprises (GSEs) critical to the housing market (Nunez, 2024). These entities have implicit government backing, which helps keep mortgage rates lower. If Trump pursued privatization, as he hinted, mortgage-backed securities might lose some of their federal guarantee, increasing risk for investors. This could result in higher post-election mortgage rates, as lenders would demand a risk premium to compensate for the lack of government support. This change would impact first-time buyers and those with limited financial resources, as affordable financing options would become less accessible.
Post-Election Mortgage Rates Under Trump’s Presidency
A second Trump presidency would likely focus on boosting economic growth and reducing the government’s role in the housing market. These policies could create mixed effects on post-election mortgage rates. While cuts to regulations and taxes may fuel economic activity, they could also increase the federal deficit, leading to higher post-election mortgage rates. The privatization of mortgage giants like Fannie Mae and Freddie Mac will also greatly affect this, making borrowing more expensive for people to afford.
Potential homebuyers might face a market with higher post-election mortgage rates but could find it easier to qualify for loans due to relaxed lending rules. However, these shifts could add financial risks linked to broader economic swings and housing market stability.
Key Takeaways
- A second Trump term would likely focus on economic growth and deregulation, which could lead to higher federal debt and potentially drive up post-election mortgage rates over time.
- Privatization of mortgage giants limits the affordability of loans.
- Relaxed lending regulations could make qualifying for mortgages easier, but the housing market might face increased risks from economic fluctuations and financial instability.
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Nunes, F. F. (2024, August). Divergent paths: Housing market policies under a Trump or Harris administration. HousingWire. https://www.housingwire.com/articles/divergent-paths-housing-market-policies-under-trump-or-harris/
Hyatt, D. (2024). Why a Trump Win Could Push Your Mortgage Rates Higher. Investopedia. https://www.investopedia.com/why-a-trump-win-could-push-your-mortgage-rates-higher-presidential-election-8736328
Zhao, C. (2024, July 29). Here’s What a Second Trump Presidency Could Mean For the Housing Market. Redfin Real Estate News. https://www.redfin.com/news/potential-trump-presidency-housing-market/
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