With former President Donald Trump gaining momentum in the final days before the US presidential election, anticipation of a Trump victory is already impacting the mortgage market.
Rising projections of a Trump win have coincided with increasing mortgage rates, a development that reflects investor expectations of higher inflation under his proposed policies.
Mortgage rates, which had dipped earlier in the year following the Federal Reserve’s recent rate cuts, are now on the rise again, reaching an average of 7.09% this week for a 30-year fixed rate, according to Mortgage News Daily. Analysts link this uptick to what some are calling the “Trump trade,” a market response based on expectations of fiscal policies that could lead to higher inflation and potentially increase the federal budget deficit. Capital Economics, a research firm, reported plans to revise its rate forecast, with economist Thomas Ryan explaining that a Trump win could push the Fed to delay further cuts, possibly even prompting an increase in interest rates to counter inflationary pressures.
The housing market, already struggling with low inventory and high prices, could feel a lasting impact if mortgage rates continue to climb. Rising rates could deter homebuyers, who may find higher borrowing costs prohibitive, especially when paired with elevated home prices. According to Moody’s chief economist Mark Zandi, a Trump win, along with a likely Republican-led Congress, would support policy changes such as tax cuts and tariffs, measures that could fuel inflation. In contrast, a victory for Vice President Kamala Harris would likely mean policy continuity, keeping inflation closer to current levels.
Zandi highlighted that Trump’s proposed tax cuts and tariffs could add to inflationary pressures, making the Fed more cautious about further easing, while Ryan suggested that an expected increase in tariffs on imports could intensify inflation. As Trump’s economic proposals focus on stimulating growth through these means, the bond market has responded, pushing the 10-year Treasury yield higher, which directly influences mortgage rates.
Economists are carefully monitoring developments in the labor market, with a critical jobs report due on Friday expected to clarify the economic trajectory. Should the data reflect a strong job market, analysts believe it could further solidify the Fed’s commitment to maintaining or even raising rates to balance inflationary risks.
The 10-year Treasury yield, which mortgage rates tend to follow, has been climbing as investors shift expectations toward limited rate cuts or even a rate hike if inflation accelerates.
“The relationship between Fed rates and mortgage rates is complex,” explained Redfin economist Chen Zhao.
Zhao however stated, that in the current climate, anticipation of Trump’s policies is keeping mortgage rates elevated, regardless of the Fed’s recent easing measures.
As the housing market adjusts to a possible Trump presidency, analysts suggest that the upward pressure on mortgage rates could lead to a more restrained housing sector. With fewer buyers willing to lock in high rates, the market may see reduced sales activity, even though real estate typically serves as a hedge against inflation.
For prospective homebuyers, the election outcome holds significant implications. While a Trump win may indicate heightened inflation risks and potentially higher mortgage rates, this scenario may also reinforce real estate’s appeal as a stable investment. Experts agree that if current trends hold, the housing market will likely experience continued tightness in supply, making affordability a central issue for Americans seeking new homes.