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 declined significantly and is coloring consumer attitudes towards the economy as a whole.
Buying and selling activity has slowed dramatically as homeowners don't let go of the low-rate mortgages they got before 2022. Existing home sales in 2024 are on track to hit a nearly 30-year low years.
30-year fixed mortgage rates are averaging north of 7%, compared to 4.09% at the start of its first term. A family putting 20% down on a $400,000 home would pay $594 more each month now compared to early 2017.
Even finding a home at that price is increasingly challenging. The median US home 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 initiating mass deportations of undocumented immigrants and easing federal regulations around construction and land use.
But economists and experts in the housing market say sweeping changes are hardly that simple, and that 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 down, certainly not with higher tariffs, deporting immigrants, 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 home building components more expensive, helping to contribute to the rapid increase in house prices in recent years.
Trump's promise to impose broad tariffs of 25% on imports from Canada and Mexico and an additional 10% on Chinese imports has made many economists worry that the problem will worsen.
The National Association of Home Builders, a trade group, estimates that 7%—or $13 billion—of materials used in residential construction will be 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 tools.
Construction workers frame a new single-family home Dec. 6, 2024, in Owensboro, Ky. (AP Photo/Charlie Riedel) ·THE SOCIAL PRESS
Trump has said that mass deportations will reduce the demand for housing, freeing up more places for citizens.
Although undocumented immigrants need their own places to live, economists say that eventual deportations risk hurting housing supply even more, because so many immigrants work in construction. Nearly a third of the construction workforce is foreign-born, according to NAHB. In California, where the housing crisis is particularly acute, immigrants make up 41% of the workforce.
“The inputs to building houses 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 significant risk of cost increases, making construction more difficult.”
Trump's favored policies such as tariffs and tax cuts may also force the Fed to keep rates higher for longer to avoid overheating the economy and raising prices broadly.
Those effects mean mortgage rates could also remain stuck at 7% or more, and housebuilders 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. companies as the housing market recovers, and financial industry groups and investors have been arguing they are leaving the arrangement.
Trump took steps toward freeing the companies 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 a long one: The companies will need time to boost their capital levels to meet regulatory requirements, and any initial public offering by the companies would be the largest ever ahead by several orders of magnitude.
The headquarters of Fannie Mae are seen in Washington, August 8, 2011. Standard & Poor's Ratings Services on Monday downgraded the credit ratings of mortgage lenders Fannie Mae and Freddie Mac and other agencies related to long-term US debt. (AP Photo/Manuel Balce Ceneta) ·THE SOCIAL PRESS
The White House will also have to balance how to release the companies without disrupting the $12 trillion mortgage business.
In conservation, Fannie and Freddie have the implicit backing of the US government and share its highest credit rating, allowing them to lend money cheaply and lower mortgage rates to consumers.
Outside of conservation, it is not yet clear what type of government guarantee – if any – the companies would have, and any change could cause borrowing costs to rise. Fitch Ratings analysts said in a report last week that an exit from conservation work would likely be “incrementally negative in terms of credit” for the companies, but the rating company would have to evaluate any financial support they provide. receive in the future.
Claire Boston is a senior reporter for Yahoo Finance covering housing, mortgages and home insurance.
