Trump is victorious. Will mortgage rates go to 8%?

In a historic comeback, former Republican president Donald Trump has been elected as the 47th president of the United States, defeating vice president Kamala Harris. The shift is expected to have broad implications for housing in America.

The Republicans look poised to also achieve significant gains in Congress. Control over the Senate was also decided in favor of the party, with 52 seats, compared to 42 for the Democrats by Wednesday morning. In the House of Representatives, Republicans lead with 198 seats, compared to the Democrat’s 180. 

This signals a potential “red wave” set to shape the U.S. political landscape starting in January. “This will truly be the golden age of America,” Trump told supporters at his election headquarters in West Palm Beach, Florida, early Wednesday morning. 

Trump will succeed President Biden, whose administration struggled with border challenges, high inflation and increasing tensions in the Middle East. In the mortgage space, high interest rates and surging home prices drove affordability to historic low levels, and the industry regularly chafed against the administration’s regulatory zeal. 

Trump’s victory has already impacted the mortgage sector – though indirectly. The higher likelihood of a Trump administration, with expectations of higher government spending, has driven up the 10-year Treasury yield, which reached 4.475% on Wednesday morning. Mortgage rates are expected to follow. On Tuesday, the 30-year fixed mortgage rate was at 6.88% though it’s climbing fast. Mortgage News Daily had rates at 7.04% on Wednesday morning.

“In the short term, rates are going up!” said HousingWire’s Lead Analyst Logan Mohtashami. “I am skeptical of the take that we are going to get significant deficits and a big inflation push from that and tariffs. However, until there is more policy clarity, the 10-year yield will move with the economic data, which has been beating estimates the last two months.”

Mohtashami said that while 8% mortgage rates are not likely this year because spreads have improved, if they worsen “and we hit 5% on the 10-year yield, 8% is in play.”

In reaction to the election results, the Community Home Lenders of America (CHLA), which represents small and mid-sized community independent mortgage banks, said it “looks forward to working with President Trump, Vice President Vance, and the rest of the administration on the critical goal of creating accessible and affordable housing for borrowers – particularly those who are first-time and low-to moderate-income.”

The trade group’s 2024 policy priorities includes reducing third-party service provider costs, such as FICO credit score fees, and eliminating trigger leads; and proposing comprehensive and effective GSE reform.

Trump’s housing agenda 

The Trump housing agenda overall remains somewhat murky. Though his 2017 tax cuts will likely be renewed, Trump said little about housing during his campaign and often tied questions about housing to immigration, claiming that immigration has made housing more expensive in America. Trump and his allies have argued that the influx of undocumented immigrants raises demand and drives home prices higher, ultimately making homeownership more challenging for citizens.  

“25 million illegal aliens competing with Americans for scarce homes is one of the most significant drivers of home prices in the country,” his running mate, Sen. J.D. Vance (R-OH) said in a debate in early October. 

However, if Trump follows through on his threat of mass deportations, it would likely reduce the construction labor force and slow down homebuilding. That could counter expected initiatives to incentivize homebuilders through low-income housing tax credits.  

A key item to watch will be any reforms focused on the government sponsored enterprises. Former Trump White House staffers have publicly stated that the president-elect intends to remove Fannie Mae and Freddie Mac from conservatorship. 

Ex-Federal Housing Finance Administration Director Mark Calabria said it would likely take several years before Republicans could return the companies to the private sector. He put the odds of it happening in 2027.

However, plans are already in the development stages. Larry Kudlow, former director of the National Economic Council, is said to be a major advisor on the move, along with John McEntee, former director of the White House presidential personnel office.

One element of the proposed plans include “having the Treasury Department partially back a certain amount of Fannie and Freddie loans through a so-called standby guarantee,” the Wall Street Journal reported in September, citing an unnamed source. “[This is] similar to the way the Federal Deposit Insurance Corp. (FDIC) backs deposits below a certain threshold at banks.”

Regarding paths to privatization, one discussed method is to reportedly bypass both houses of Congress and instead commence the process through the FHFA. The agency would be “key to any plan,” the report said, since it establishes the GSEs’ capital requirements. 

Any additionally derived value from the GSEs could be divided between the government and GSE shareholders, which could avoid drawn-out and costly legal proceedings.

If they’re released from conservatorship, there are large questions about the response from the MBS markets, what happens to prior GSE-issued securities and future risk weighting.

Opponents say the release of Fannie and Freddie could limit the credit box and result in higher guarantee fees. 

Regulation and enforcement under Trump 

It’s still unclear who the Trump transition team will tap to run key housing agencies and regulatory bodies, such as the FHFA, HUD and Consumer Financial Protection Bureau. Because of his prior term in office and the expected super majority in the Senate, there will likely be fewer acting directors than in his first administration, and less Washington gridlock to slow down a housing agenda.

Many potential officials have already been vetted, and several key housing officials from 2016-2020 are rumored to be angling for jobs in the new administration. 

Trump also campaigned heavily on employing tariffs to outmuscle foreign competition for goods. An analysis from the National Retail Federation have said such tactics would cost Americans $78 billion annually. It could see a return to soaring lumber prices and housing materials that were routine in the wake of the pandemic. 

Trump ally Elon Musk also recently pledged to identify $2 trillion in cuts in the U.S. government budget, and that could affect housing agencies, which have historically seen budget cuts during Republican administrations. 

Still, there is speculation that a second Trump administration would be much friendlier to mortgage and real estate industries than Biden. Speaker of the House Mike Johnson has already said that Republicans intend to remove a significant amount of regulation enacted during the Biden years. The Mortgage Bankers Association has also said it is optimistic there would be less red tape and fewer regulatory costs under Trump over the next four years.

Analysts at Keefe, Bruyette and Woods (KBW) view the Trump win as a “significant positive for the financial sector.” They added, “Election could have a significant impact on the regulation of the financial sector, with a Trump administration likely to yield a deregulatory boost.” 

The analysts said as many as eight regulatory agencies can experience day-one leadership changes, including the FHFA and the CFPB.