What the Election Means for the Housing Market and Mortgage Rates

Blog posted On November 14, 2024

The upcoming administration turnover is raising a lot of questions and concerns about the future of the economy, housing industry, and mortgage rates. Though nothing is set in stone, there are some predictions about what could happen in coming years. Here are some of the major concerns and potential outcomes.

Mortgage rates

As a reminder, the president cannot directly raise or lower rates. Their policies, however, can affect them. So, any of the market’s rate trend predictions you’re seeing right now are just based on expected policy changes. Some factors that could affect the trajectory of rates include:

• Could trend higher if Fannie Mae and Freddie Mac end conservatorship: There are claims floating around that the president elect will be returning the government-sponsored enterprises (GSEs) known as Fannie Mae and Freddie Mac back to the private sector. Opposers of this change fear ending the conservatorship would cause mortgage prices to jump since Fannie Mae and Freddie Mac would need to raise fees to make up for the increased risks they would face without government support. Even if the end to the conservatorship does go through, ex-Federal Housing Finance Administration (FHFA) Director Mark Calabria said it likely wouldn’t happen until 2027.
• Could trend higher/lower if economy gains/loses strength: The markets believe that with the new administration will come a stronger economy: “since Election Day, the Dow Jones Industrial Average has skyrocketed more than 1,700 points, largely on expectations that tax cuts and a broad loosening of regulations will accelerate economic growth and swell corporate profits,” noted PBS. A stronger economy generally means higher-trending rates. However, the reverse could be true as well.

Housing inventory

The supply of available homes on the market remains a challenge. While it has improved marginally, it still is considerably low, which not only limits buyers’ options, but can push prices higher as well. The incoming administration has claimed that it will help increase the number of available homes through the following:

• New construction on federal land: In a news conference on August 15, the president-elect said, “we’re going to open up tracks of federal land for housing construction,” stating that “we desperately need housing for people who can’t afford what’s going on now.” Commenting on the claims, Jim Tobin, president and CEO of the National Association of Home Builders, said “it’s clear that the prescription for that crisis is more building.” Others have claimed that building in these rural areas won’t help solve the issue as much as increasing supply in more heavily populated areas.

Home prices

A huge barrier for many buyers right now is the cost of buying a home. Home prices were up by over 5% annually in August and continue to show signs of strength even in the cooler buying periods. Two factors that could affect home prices include: 

• Reduced regulations which would decrease fees on the buyer’s end: The Mortgage Bankers Association is optimistic that there will be less red tape and fewer regulatory costs over the next four years. “About 24% of the cost of a single-family home and about 41% of the cost of a multifamily home are directly attributable to regulatory costs at the local, state and federal level,” Tobin said. “If we reduce the regulatory burden on home construction or apartment construction, we’re going to lower costs [for] the consumer.”
• Increased tariffs could push housing costs higher: The incoming administration is also expected to add a ‘blanket tariff’ at 10% to 20% on raw building materials like lumber. The goal of the tariffs is to generate revenue and bring industrial jobs back to the country. However, it could come at cost to home buyers – pushing prices higher.

Thoughts from industry experts

• “Rates have moved in a direction that suggests investors are preparing for either more inflation or stronger economic growth,” said Danielle Hale, chief economist for Realtor.com. “Either way, it does seem likely, at least in the short term, that mortgage rates are going to go higher.”
• “Continued rate cuts [from the Federal Reserve] could begin to drive down mortgage rates, which have remained stubbornly high,” said Michele Raneri, vice president of U.S. research and consulting at TransUnion
• “As long as investors remain worried about what the future may bring, Treasury yields, and, by extension, mortgage rates are going to have a tough time falling and staying down,” said Jacob Channel, senior economist at LendingTree

If you have any questions about the potential changes and what they mean for you, let us know!

Sources: CNBC, PBS, Realtor.com,  S&P Global, USA Today