Challenging the US housing market for Mr. Trump

By the time Trump was about to return to the White House, the US housing market was very different from his first term. Last week, the 30-year fixed mortgage interest rate was 6.91%, the highest level in the past six months. In the same period of 2023, the average interest rate is 6.62%.

“Compared to this time last year, interest rates have increased and market affordability constraints continue,” said Sam Khater, chief economist at mortgage lender Freddie Mac.

In January 2021, the average home loan interest rate was just under 2.8% when Mr. Trump left office. Compared to four years ago, borrowers now have to pay hundreds, even thousands of dollars more each month for the same house value. The selling price also escalated from there. According to the S&P CoreLogic Case-Shiller Home Price Index, national home prices increased by 37% from January 2021 to October 2024.

America’s housing challenges are due in part to years of under-construction after the 2008 housing crisis and the Federal Reserve’s recent campaign to raise interest rates.

Many economists predict that the 2025 US housing market will not improve. “I see very few reasons why the housing market should be better than this year,” commented Jim Parrott, Urban Institute expert, former senior advisor to the National Economic Council.

President-elect Donald Trump shared no official plans during the campaign to improve housing affordability. However, transition spokesman Taylor Rogers said the President-elect will help make housing affordable again, by beating inflation and reducing mortgage interest rates.

He added that President Trump would ban illegal immigrants from getting home loans, eliminate federal regulations that drive up home prices, open up federal lands with extremely low taxes and regulations on home construction. on a large scale. “The cost of building new homes will be cut in half and President Trump will end the housing affordability crisis,” he declared.

Previously, Mr. Trump pointed out how regulations add to the cost burden on real estate development projects. During the election campaign, he promised to cut housing regulations.

The National Association of Home Builders’ 2021 study says regulations account for $93,870 of the final price of a typical new home. At that time, the average price of a home was $394,300. As of November 2024, the price is $484,000 according to the US Census Bureau.

However, some experts still believe that many of Mr. Trump’s policy proposals have the risk of worsening the housing market. “What Trump says is largely going in the wrong direction, at least in terms of house prices,” Parrott said.

According to him, the intention of mass evictions could stall construction activities. The influx of immigrants is likely to increase housing demand, causing prices to rise. But they also play an important role in expanding supply. Because a large number of undocumented immigrants are working in the construction industry.

Several other policy proposals also threaten to increase the cost of buying a home. Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), says the biggest factor affecting affordability is mortgage interest. “Reducing interest rates from the current 7% to about 6% or lower will make a big difference in affordability,” he said.

The problem is that mortgage rates depend on the yield on the 10-year Treasury note, which is partly influenced by expectations of future inflation. Mr. Trump’s threat to increase tariffs on imported goods has caused some economists to warn that inflation is at risk of returning.

Online brokerage platform Realtor forecasts that the average home loan interest rate in 2025 in the US will be 6.3% and end the year at 6.2%. This is slightly lower than the 6.7% expected for 2024, but still well above the historical average of 4% recorded from 2013 to 2019.

In addition, in his first term, Mr. Trump tried – but failed – to privatize Fannie Mae and Freddie Mac, two corporations that lend 70% of mortgages in the US. If he continues to pursue this effort, it could cause mortgage interest rates to rise, according to Mr. Yun.

However, there is still some prospect of self-adjustment in the upcoming market. It’s taking longer for a house to find a home, meaning prices could soon drop further. Home sales in December increased for the fourth consecutive month, a sign that many people have begun to accept loans at high interest rates rather than waiting.

Expert Lawrence Yun said that consumers seem to have adjusted their expectations about interest rates and made more use of inventory hitting the market. Mortgage interest rates have averaged above 6% over the past 24 months and he thinks sales have almost bottomed out in 2024. “I think there will be more volatility in the housing market this year,” he said.

Realtors forecast that home prices will increase by 3.7% by 2025, after increasing by 4% in 2024 and 1.1% in 2023. Existing home sales are expected to reach 4.07 million units, an increase of 1.5%. compared to 2024, but still slow compared to the average level for the 2013-2019 period of 5.28 million units.

The platform’s team of experts also said that housing affordability remains at a record low and is not forecast to see much improvement. However, if Mr. Trump can deliver strong economic growth that boosts incomes, it could make home prices relatively more affordable. Additionally, domestic tax cuts provide more disposable income, boosting purchasing power.

“If both income growth and lower taxes materialize, we could see home prices become somewhat more affordable in 2025 than in previous years. However, the unpredictable factor here is how the Other Trump administration policies could affect prices of other goods and services,” the Realtor report noted.