‘Difference is Trump’: American homebuyers brace for rate pain

| Bloomberg

Redfin Corp. predicted that mortgage rates will average 6.1% in the upcoming year prior to Donald Trump’s election. However, they updated their forecast to 6.8% three days after the election, which was essentially unchanged from the high levels of today.

According to Redfin head economist Daryl Fairweather, Trump is the difference. It’s difficult to predict what Trump will do, but the market appears to be pricing in that he will proceed with at least some of the tariffs.

The housing market has been affected hard by rising borrowing costs, which have caused at least one measure of mortgage rates to soar above 7%. The market is going to be difficult for homebuyers looking for inexpensive solutions, as evidenced by economists’ predictions of greater borrowing costs for longer periods of time.

According to Thomas Ryan, a North America economist at Capital Economics, there was a belief that rates would progressively decline, but that doesn’t appear to be the case anymore. Because of this, the housing market will remain stagnant for a longer period of time than we and other economists had anticipated.

The bond market has responded more cautiously given how tariffs and other policies would affect inflation, even if the stock market rebounded the day after Trump’s election. Due to tariffs and possible immigration restrictions, Barclays Plc economists revised their forecasts for inflation over the next two years and downgraded their view for economic growth following the election.

One of the main sources of concern is Trump’s intention to impose a tariff of up to 20% on all imports and an even higher 60% on Chinese goods. According to economists, businesses would probably pass such cost increases on to customers, which might result in inflation. Long-term rates might rise even further if he also implements tax cuts, which would reduce fiscal revenue and increase the US deficit.

Additionally, several economists have cautioned that Trump’s proposal to deport millions of undocumented immigrants may make the country’s housing crisis worse. Building new homes would be challenging and more costly if Trump’s proposals result in an even smaller work force for the construction sector.

Nadia Evangelou, senior economist at the National Association of Realtors, stated that we require workers. There are instances when builders are unable to produce homes that are affordable or within the range of what consumers can afford. And the labor scarcity is the cause of this.

The Federal Reserve’s actions will probably be influenced by Trump’s effects on the economy. Additionally, monetary policy has some influence over mortgage rates even if the Fed’s decisions regarding short-term interest rates do not directly affect them. Mortgage rates are influenced by market expectations for inflation and economic development, and they closely mirror yields on 10-year Treasuries.

Higher rates are predicted by Capital Economics to be still another blow to buyers and to make the recovery in property sales even more slender than anticipated. Capital Economics Ryan predicts that mortgage rates will barely decrease by a quarter point by the end of 2025 and will likely remain high at over 7% in 2024.

According to Ryan, most people agree that Trump’s actions will ultimately have an inflationary impact. That is the current factor influencing changes in the bond market.

The expectations of other economists about mortgage rates have also been lowered. Moody’s Analytics chief economist Mark Zandi believes that 30-year fixed mortgage rates will continue to hover around 7%.

“I don’t believe I would anticipate a decrease in mortgage rates until the fall of next year,” Zandi stated. I’m not sure even then. It really depends on what his policies are, how aggressively he pursues them.

Forging aAhead

For buyers, the picture remains a little uncertain. High borrowing costs have weighed on shoppers, fueling a drop in contracts to buy previously owned homes in October, according to Redfin.

While prices held up in October, homes stayed a median of 41 days on the market, about a week longer than a year ago, according to Redfin. If higher borrowing costs slow the market even more, that could help spur more deals for buyers.

For now, election uncertainty has cleared, giving some consumers more confidence to forge ahead. Erica Diaz, an agent with Homevest in Florida, said her business has seen a significant increase in both potential buyers and sellers since the election.

Malvin Le, a real estate agent based in Orange County, California, said his phone lit up immediately after the election with a few buyers ready to go shopping again.

The day after the election, I got three or four calls from buyers who wanted to see a house that weekend, Le said. There are still buyers waiting to buy, they re just waiting for a good deal.