When it comes to buying a home, mortgage rates play a massive role in determining affordability. With President-elect Trump’s potential economic policies on the horizon, it’s worth asking: how could these plans influence mortgage rates? Let’s break it down.
1. Fiscal Policies and Government Debt: Trump’s plans include significant tax cuts and increased infrastructure spending. While these measures aim to stimulate economic growth, they may also lead to higher federal deficits. To finance increased debt, the government might issue more bonds, potentially raising bond yields. Since mortgage rates are closely tied to the yields on long-term government bonds, higher yields could result in increased mortgage rates. The Federal Deficit is already running $36 Trillion and counting.
2. Inflationary Pressures: Policies that boost economic activity can sometimes lead to higher inflation. If inflation rises, lenders may demand higher interest rates to compensate for the decreased purchasing power of future repayments. Consequently, mortgage rates could climb in response to anticipated inflation.
3. Trade Policies and Tariffs: Trump has advocated for imposing tariffs on imports to protect domestic industries. While this approach aims to bolster U.S. manufacturing, it could also increase the cost of imported goods, contributing to inflationary pressures. As mentioned earlier, higher inflation can lead to increased mortgage rates.
4. Federal Reserve Appointments: The President has the authority to appoint members to the Federal Reserve Board. Trump’s selections could influence the Fed’s monetary policy stance. If appointees favor a more hawkish approach to controlling inflation, the Fed might implement policies that lead to higher interest rates, including mortgage rates. There has been banter about the President having more influence on the Federal Reserve. Personally, I don’t care which party is in Power or who’s President, the Federal Reserve needs to be independent, and free from Political influence.
5. Regulatory Changes: Trump has expressed intentions to reduce regulations in the financial sector. As a lender I under the jurisdiction of several regulatory agencies. Many agencies are literally overlapping, or in conflict with each other. It’s been documented that presently it costs around $3000 – $7500 per loan to meet the basic regulations in place. Consolidating agencies, policies and regulations would be of benefit to lenders and borrowers… While deregulation could lower operational costs for lenders, potentially benefiting borrowers, it might also lead to increased risk-taking. If such actions result in financial instability, they could indirectly affect mortgage rates.
6. Department of Government Efficiency (DOGE): This can be a good one if done correctly. When the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law were put in place in 2010, it was originally perceived that a few or the existing government agencies could be consolidated under the new Consumer Financial Protection Bureau (CFPB) making it more efficient and cost effective. In reality no agency was eliminated, just another layer of bureaucracy was created.
Elon Musk’s leadership of the newly established Department of Government Efficiency (DOGE) aims to streamline federal operations and reduce wasteful spending. This initiative could influence the federal debt and, consequently, mortgage rates in several ways:
A) Reducing Federal Spending: By identifying and eliminating inefficiencies, DOGE seeks to decrease government expenditures. Lower spending can reduce the federal deficit, potentially slowing the growth of the national debt. A smaller deficit may lessen the government’s borrowing needs, which could lead to lower yields on government bonds. Since mortgage rates are closely tied to long-term Treasury yields, a decrease in these yields might result in lower mortgage rates.
B) Enhancing Investor Confidence: Efforts to improve government efficiency and fiscal responsibility can boost investor confidence in the U.S. economy. Increased confidence may lead to higher demand for U.S. Treasury securities, driving up their prices and lowering yields. As mortgage rates often follow the direction of Treasury yields, this could contribute to a decline in mortgage rates.
C) Addressing Inflationary Pressures: Efficient government spending can help mitigate inflation by reducing the need for excessive borrowing and spending. Lower inflationary pressures can lead to decreased interest rates across the economy, including mortgage rates. However, the extent of this impact depends on the scale of the efficiency measures implemented and their effectiveness in curbing inflation.
D) Potential Challenges and Limitations: While DOGE’s initiatives have the potential to positively affect the federal debt and mortgage rates, several challenges exist:
Implementation Hurdles: Achieving significant reductions in government spending requires overcoming bureaucratic resistance and navigating complex political landscapes.
E) Scope of Influence: Some federal expenditures, such as entitlement programs, are mandatory and may not be easily reduced without legislative changes.
F) Timeframe: The effects of efficiency measures on the federal debt and mortgage rates may take time to materialize, and immediate impacts might be limited.
While some of Trump’s proposed policies aim to make homeownership more affordable, the broader economic effects—such as increased deficits and inflationary pressures—could counteract these intentions by leading to higher mortgage rates. The actual impact will depend on how these policies are implemented and how markets respond. We shall see…
If you are in the Los Angeles area, and have any questions or real estate sales or financing needs, feel free to contact me
Ron Henderson GRI, SRES, SFR, RECS, CIAS, CREN, GREEN
President/Broker
Multi Real Estate Services, Inc.
Gov’t Affairs Chair – California Association of Mortgage Professionals (2017-2018)
Chairman – OutWest Marketing Meeting (Real Estate Education)
BRE #00905793 NMLS #310358
www.mres.com
ronh@mres.com
Specialist in the Art of Real Estate Sales and Finance
Real Estate market, mortgage rates, Los Angeles, San Fernando Valley, Conejo Valley, Simi Valley, Woodland Hills, West Hills, Calabasas, Chatsworth
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