How a Trump Presidency Could Influence Mortgage Rates and Real Estate Markets

The potential return of Donald Trump to the White House in 2025 has sparked intense debate about the macroeconomic implications of his policy agenda, particularly for mortgage rates and real estate markets. Trump's proposed fiscal policies-ranging from aggressive tariffs to sweeping tax cuts-could reshape inflation dynamics, federal deficits, and the Federal Reserve's monetary strategy. These factors, in turn, will directly influence borrowing costs for homeowners and the broader housing market.

Fiscal Policies and Inflation: A Double-Edged Sword

Trump's economic blueprint hinges on protectionist trade policies and tax cuts designed to stimulate growth. However, these measures carry significant inflationary risks. The administration's proposed 25% tariffs on goods from Canada and Mexico, alongside 10% tariffs on Chinese imports, are projected to raise consumer prices by 2% to 3% on affected goods, with households facing an annual cost increase of over $1,200, as Investopedia notes. Such inflationary pressures could force the Federal Reserve to maintain higher interest rates for longer, directly impacting mortgage rates.

According to a CBS News report, the 30-year fixed mortgage rate is expected to hover between 6% and 7% in 2024–2025, stabilizing around 6.5% by mid-2025. This trajectory reflects the Fed's prioritization of inflation control over rate cuts, even as Trump's allies push for policies that could exacerbate price pressures.

The administration's tax proposals further complicate the picture. The "One Big Beautiful Bill Act" extends the 2017 tax cuts, permanently lowering corporate and individual rates while increasing the federal deficit by an estimated $4.1 trillion over the next decade, according to Kiplinger. This surge in government borrowing could drive up demand for Treasurys, pushing 10-year yields-and by extension, mortgage rates-higher. As stated by the Congressional Budget Office, the added interest costs alone could reach $700 billion, according to the same Kiplinger analysis.

Federal Reserve Independence and Policy Constraints

Despite Trump's vocal criticism of the Federal Reserve, central bank officials have reaffirmed their commitment to independence. Federal Reserve Governor Adriana Kugler emphasized that "the independence of the central bank is the foundation for achieving good economic outcomes," countering concerns about political interference, as Moomoo notes. This independence is critical, as the Fed's inflation-targeting framework will likely remain the primary determinant of mortgage rates.

However, Trump's proposals introduce uncertainty. For instance, his allies in Congress have floated radical ideas, such as selling the Fed's gold reserves to purchase 1 million bitcoins as part of a "strategic reserve" . While these plans lack bipartisan support and face skepticism from market analysts, they underscore the broader tension between fiscal policy and monetary stability.

Real Estate Market Effects: Affordability and Construction Challenges

The real estate market is already grappling with affordability challenges. First-time homebuyer participation has plummeted to 24% in 2024, the lowest since 1981, as CBS News reports. High mortgage rates, combined with elevated home prices, are delaying homeownership for many Americans, with long-term implications for wealth accumulation.

Trump's immigration policies could further strain the housing market. Proposed mass deportations and stricter work visa rules may reduce the labor supply in construction, slowing new home development and exacerbating supply constraints, according to CNN. Meanwhile, tariffs on imported materials could increase building costs, pushing home prices higher.

The Federal Reserve's inflation-targeting strategy adds another layer of complexity. Analysts predict that inflation will not return to the 2.0% target until 2027 or later, keeping mortgage rates elevated for years, according to U.S. News. This scenario could suppress home sales until late 2025 or 2026, when rate cuts might finally materialize.

Future Outlook: Navigating Uncertainty

Investors and policymakers must prepare for a prolonged period of high mortgage rates and a sluggish real estate market. Trump's policies, while aimed at boosting economic growth, risk creating a volatile environment where inflation and deficits rise in tandem. The Fed's ability to balance these pressures will be pivotal.

For now, the housing market remains in a holding pattern. As one industry expert notes, "The key will be whether Trump's policies trigger a surge in inflation that forces the Fed to act more aggressively-or whether fiscal discipline can be maintained to stabilize rates," as CNN reports.