President-elect Donald Trump is inheriting a housing market that looks nothing like it did in his first term.
Affordability, measured by average home prices and mortgage rates, has markedly deteriorated and is coloring consumers’ attitudes toward the economy as a whole.
Buying and selling activity has slowed dramatically as homeowners stay put to avoid giving up the low-rate mortgages they got before 2022. Existing home sales in 2024 are on track to reach a nearly 30-year low.
Average 30-year fixed mortgage rates are north of 7%, compared with 4.09% at the start of his first term. A family that puts 20% down on a $400,000 home would pay $594 more each month now compared with the start of 2017.
Even finding a home at that price is increasingly challenging. The median home in the US sells for $420,400, 35% higher than just before Trump’s first term. Then, the median home cost $310,900.
The incoming Trump administration has promised to slash mortgage rates and home prices by instituting mass deportations of undocumented immigrants and easing federal regulations around building and land use.
But economists and housing market experts say sweeping changes are hardly so simple, and some of Trump’s proposed policies, like tariffs, risk worsening inflation and housing affordability.
“I don’t see how President Trump is going to get rates down, certainly not with higher tariffs, immigrant deportation, and deficit-financed tax cuts,” said Mark Zandi, chief economist at Moody’s Analytics. “That’s all very inflationary.”
Pandemic-related supply chain disruptions made many components of home construction more expensive, helping contribute to the rapid run-up in home prices in recent years.
Trump’s pledge to impose broad 25% tariffs on imports from Canada and Mexico and an additional 10% on Chinese imports has many economists worried the problem will get worse.
The National Association of Homebuilders, a trade group, estimates that 7% — or $13 billion — of materials used for residential construction were imported in 2023. The industry relies on Canada for much of its wood, Mexico for lime and gypsum that goes in plaster, and China for appliances.
Construction workers frame a new single-family home Dec. 6, 2024, in Owensboro, Ky. (AP Photo/Charlie Riedel) ·ASSOCIATED PRESS
Trump has said mass deportations will reduce housing demand, freeing up more spaces for citizens.
While undocumented immigrants need their own places to live, economists say deportations ultimately risk hurting housing supply even more, because so many immigrants work in construction. Nearly a third of the construction labor force is foreign-born, according to the NAHB. In California, where the housing crisis is particularly acute, immigrants make up 41% of the labor.
“The inputs for building housing are materials, labor, and capital,” said Stijn Van Nieuwerburgh, a real estate and finance professor at Columbia University’s Graduate School of Business.
“On all three counts, there is substantial risk for cost increases, making building more difficult.”
Trump’s favored policies like tariffs and tax cuts may also force the Fed to keep rates higher for longer to avoid overheating the economy and driving up prices broadly.
Those effects mean mortgage rates, too, may stay stuck at 7% or more, and homebuilders could face higher financing costs themselves.
Another top 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 the 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 the housing market recovered, and financial industry groups and investors have been advocating that they exit the arrangement.
Trump took steps toward releasing the companies during his first term but ultimately ran out of time to finish the highly complex job.
Even this time around, any plan is likely to be lengthy: The companies will need time to boost their capital levels to meet regulatory requirements, and any initial public offering of the companies would be the largest of all time by several orders of magnitude.
The Fannie Mae headquarters is seen 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 linked to long-term US debt. (AP Photo/Manuel Balce Ceneta) ·ASSOCIATED PRESS
The White House will also have to balance how to release the companies without disrupting the $12 trillion mortgage business.
In a conservatorship, Fannie and Freddie have the implicit support of the US government and share its top credit ratings, allowing them to borrow money cheaply and lower mortgage rates for consumers.
Outside of conservatorship, it’s not yet clear what kind of government guarantee — if any — the companies would have, and any shift could cause borrowing costs to rise. Fitch Ratings analysts said in a report last week that an exit from conservatorship would likely be “incrementally credit negative” for the companies, but the ratings firm would have to evaluate any future financial support they’re receiving.
Claire Boston is a senior reporter for Yahoo Finance covering housing, mortgages, and home insurance.
