Mortgage rates were predicted to fall in 2025. Does a Trump win change that?

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• Mortgage rates were forecast to go down in 2025. But President-elect Donald Trump's policies could keep them elevated.
• Expectations of higher inflation and more government debt under Trump have helped mortgage rates rise in recent weeks.
• Trump's plans for deregulation could make building houses easier, improving supply and affordability.

For a while now, experts have been saying that mortgage rates should drop soon, and that if you're thinking about buying a house, you may be able to get a better rate by waiting until 2025. 

But some economists and investors are worried that President-elect Donald Trump's second term could see inflation and interest rates rise again. What does that mean for mortgage rates?

Why mortgage rates rose ahead of the election — and are still high now

Mortgage rates went down a lot in September, with 30-year rates dropping near 6%, according to Freddie Mac. But they increased rapidly in October in the run-up to the election, and they're now up to 6.78%. 

According to Chen Zhao, who leads Redfin's economics team, bond investors think that Trump's proposed policies could raise inflation and add to the deficit, so yields rose as it became more likely that he would win.  

Bond market activity plays a big role in determining mortgage rates. When yields go up, so do mortgage rates.

Aside from the election, the economy has also been remarkably strong lately, which has shifted market expectations around future Federal Reserve rate cuts. This has kept mortgage rates up as well.

"Stronger economic data has sent yields higher, especially employment and consumer spending data," says Melissa Cohn, regional vice president at William Raveis Mortgage.

How Trump's policies could lead to higher mortgage rates

Zhao says that right now it's "nearly impossible" to predict where mortgage rates will go in 2025. Rates are expected to go down as the Fed lowers the federal funds rate, but if the Fed has to respond to higher inflation, we could see rates go higher.

"The difficulty in predicting all of this is that President Trump can be a uniquely unpredictable person, and so it's hard to know where his policy proposals will actually lead," she says.

Tariffs are expected to reignite inflation

President-elect Trump has said he wants to impose large tariffs on U.S. imports, which many experts believe would make consumer goods more expensive for Americans.

"The tariff policies, I think, matter for bond markets because tariffs are generally seen to be inflationary for the U.S.," Zhao says. "So that means that if tariffs are increased, then if we have more inflation, that generally leads to higher rates."

In an August analysis of both Trump and Vice President Kamala Harris' policies, Moody's Analytics estimated that Trump's proposed tariffs and deportations could raise annual inflation to 3.5% in 2025, above Moody's baseline forecast of 2.4%. 

If inflation goes up, the Fed may have to pause its rate cuts or even consider raising rates again. This would keep mortgage rates elevated.

"With Trump elected president, I would not assume anything about future rate cuts," Cohn says. "The desired tariffs will be inflationary and will slow the pace of any future rate cuts. Mortgage rates will only drop if the economy slows down a bit and if the proposed tariffs are not implemented immediately."

Tax cuts could increase the deficit 

Trump also plans to cut taxes in his second term and extend the Tax Cuts and Jobs Act, which he passed in his first term. But more tax cuts could add to the goverment's already-huge debt balance.

"The more tax cuts we have, the larger the government deficit is if we don't cut spending," Zhao says. "And that means a greater supply of Treasury securities that we have to issue in order to finance that deficit, which means that rates have to be higher."

Will housing supply improve under Trump?

If Trump moves forward with his plans for mass deportation, will that free up housing supply? Probably not, Zhao says. In fact, it could make the problem worse. 

"A lot of the immigrants that he's talking about deporting oftentimes don't account for much housing demand because they're living with a large number of people, so they don't take up a lot of housing," Zhao says. "But on the housing supply side, it does matter because by and large the construction workers who build the housing that we have in this country are oftentimes immigrants."

With fewer workers available to build homes, costs are likely to go up.

However, Zhao does think Trump's focus on deregulation could be a positive for housing, since many regulations can make it hard to build more homes. She says that lack of housing is the main reason why homes are so unaffordable now.

"It could be a real opportunity for President Trump to make a big difference on unaffordability if he's very serious about deregulation," Zhao says. "Of course, this has to be done in a responsible way, because regulations are in place for a reason, but I do think there is an opportunity for him."

More supply would help moderate home price growth, improving affordability even if mortgage rates remain high.