President-elect Donald Trump is inheriting a housing market that looks nothing like his first term.
Affordability, as measured by average home prices and mortgage rates, has deteriorated markedly and is influencing consumer attitudes toward the economy as a whole.
Buying and selling activity has slowed sharply as homeowners sit tight to avoid giving up low-interest mortgages they took out before 2022. Existing home sales in 2024 are on track to hit a low of nearly 30 years.
Average 30-year fixed mortgage rates are above 7%, up from 4.09% at the start of his first term. A family putting 20% down on a $400,000 home would now pay $594 more each month compared to the beginning of 2017.
Even finding a house at that price is increasingly difficult. The average home in the United States sells for $420,400, 35% more than just before Trump’s first term. Back then, the median home cost $310,900.
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The incoming Trump administration has promised to reduce mortgage rates and home prices by instituting mass deportations of undocumented immigrants and relaxing federal regulations on construction and land use.
But economists and housing market experts say sweeping changes aren’t that simple, and some of Trump’s proposed policies, such as tariffs, risk worsening inflation and housing affordability.
“I don’t see how President Trump is going to get rates lower, certainly not with higher tariffs, immigrant deportations and deficit-financed tax cuts,” said Mark Zandi, chief economist at Moody’s Analytics. “All of that is very inflationary.”
Pandemic-related supply chain disruptions made many components of home construction more expensive, contributing to the rapid rise in home prices in recent years.
Trump’s promise to impose sweeping tariffs of 25% on imports from Canada and Mexico and an additional 10% on Chinese imports has many economists concerned that the problem will worsen.
The National Association of Home Builders, a trade group, estimates that 7% (or $13 billion) of materials used for residential construction will be imported in 2023. The industry depends on Canada for much of its lumber and on Mexico for the lime and gypsum used in plaster. and China for household appliances.
Construction workers frame a new single-family home on Dec. 6, 2024 in Owensboro, Kentucky (AP Photo/Charlie Riedel) ·ASSOCIATED PRESS
Trump has said mass deportations will reduce demand for housing, freeing up more spaces for citizens.
While undocumented immigrants need their own places to live, economists say deportations ultimately risk further damaging the housing supply because many immigrants work in construction. Nearly a third of the construction workforce is foreign-born, according to the NAHB. In California, where the housing crisis is particularly acute, immigrants represent 41% of the workforce.
“The inputs to building homes are materials, labor and capital,” said Stijn Van Nieuwerburgh, a professor of real estate and finance at Columbia University’s Graduate School of Business.
“On all three counts, there is a substantial risk of cost increases, making construction difficult.”
Policies favored by Trump, such as tariffs and tax cuts, may also force the Federal Reserve to keep rates higher longer to prevent the economy from overheating and a widespread rise in prices.
Those effects mean mortgage rates may also remain stuck at 7% or higher, and homebuilders could face higher financing costs themselves.
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Another big priority for Trump will be the likely release of mortgage giants Fannie Mae and Freddie Mac from federal conservatorship.
Fannie and Freddie, which support the mortgage market by buying loans and packaging them into bonds sold to investors, have been under government control since they nearly collapsed during the 2008 subprime mortgage crisis. The companies’ fortunes improved as they recovered the housing market, and financial industry groups and investors have been advocating for them to abandon the deal.
Trump took steps to free up businesses during his first term, but ultimately ran out of time to finish the highly complex job.
Even this time, any plan is likely to be lengthy: The companies will need time to raise their capital levels to meet regulatory requirements, and any initial public offering by the companies would be the largest of all time by several orders of magnitude. magnitude.
Fannie Mae headquarters in Washington, Aug. 8, 2011. Standard & Poor’s Ratings Services on Monday downgraded the credit ratings of mortgage lenders Fannie Mae and Freddie Mac and other agencies tied to long-term U.S. debt. (AP Photo/Manuel Balce Ceneta) ·ASSOCIATED PRESS
The White House will also have to find a way to free up the companies without disrupting the $12 trillion mortgage business.
In a conservatorship, Fannie and Freddie have the implicit support of the U.S. government and share their highest credit scores, allowing them to borrow money at low costs and lower mortgage rates for consumers.
Aside from conservatorship, it’s still unclear what type of government guarantee (if any) companies would have, and any changes could cause borrowing costs to rise. Analysts at Fitch Ratings said in a report last week that an exit from conservatorship would likely be “increasingly credit negative” for the companies, but the ratings firm would have to evaluate any future financial support they are receiving.
Claire Boston is a senior reporter for Yahoo Finance covering housing, mortgages and home insurance.
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