Trump Promised Lower Mortgage Rates. Can He Deliver?

Long before President Donald Trump regained control of the White House, he said on the campaign trail that he would drive down mortgage rates to 2% “by quickly defeating inflation.” However, his policy proposals focusing on tariffs are more likely to rekindle inflation, while tax cuts are expected to increase the federal deficit — all of which could keep rates higher for longer.

Here are three ways that the Trump administration could affect mortgage rates and housing costs as a whole.

[Read: Best Mortgage Lenders]

Tariffs Could Stoke Inflation, a Key Driver of Mortgage Rates

Mortgage rates have risen significantly since Trump’s election victory. On one hand, recent data shows that inflation hasn’t been slowing as quickly as the Federal Reserve would like. Another contributing factor is that markets are hinging on heightened long-term inflation risk if Trump makes good on his promise to increase tariffs.

“Economic research shows that most of the cost of tariffs — which are a tax on imports — are borne by U.S. businesses and consumers,” Wells Fargo economists say in a 2025 economic outlook. Most experts agree that tariffs would increase the cost of imported goods. In an unconventional move just months before the presidential election, 16 Nobel Prize-winning economists signed a letter warning that Trump’s proposals would “reignite” inflation. A recent report from the Congressional Budget Office — a federal agency — suggests that Trump’s tariff plan “would make consumer goods and capital goods more expensive.” It would cost American families an average of $1,560 per year, according to the U.S. Senate Committee on the Budget.

When inflation is high, the Federal Reserve can combat price growth by raising short-term interest rates. And when short-term rates are higher, long-term rates on Treasury bonds — and by extension, mortgages — must also rise to attract investment. With Trump’s tariffs on the horizon, inflation and interest rates are poised to stay higher for longer.

Tax Cuts Could Send the Deficit (and Rates) Higher

The 30-year mortgage rate closely tracks the yield on 10-year Treasury bonds. So, let’s consider what influences the underlying benchmark for mortgage rates: the bond market.

Bond yields can rise for a number of reasons, including U.S. fiscal policy. Proposals that increase government spending or decrease revenue (like tax cuts) can throw the federal budget off-balance, which makes it less attractive for investors to purchase government debt like Treasury bonds.

Put simply, “higher federal borrowing costs in the future will mean higher mortgage rates for would-be homebuyers and higher financing costs for homebuilders,” according to the Bipartisan Policy Center, a nonprofit think thank.

Unless there’s a miracle on Capitol Hill, the federal deficit is expected to continue growing under the Trump administration’s fiscal policy direction. The CBO says that extending the Trump tax cuts for 10 years as Republicans have proposed would add $4.6 trillion to the deficit.

All told, Trump’s complete economic plan would increase the debt by $7.75 trillion, according to the Committee for a Responsible Federal Budget, a nonprofit group that provides objective policy analysis.

[READ: Compare Current Mortgage Rates]

Trade War, Immigration Reform Could Hike Housing Costs

Wells Fargo economists predict in their 2025 outlook that the housing industry “will very likely need to contend with increased material costs from additional tariffs as well as more acute shortages of skilled labor as a result of tighter immigration controls.”

On that first point, tariffs can potentially increase the cost of imported materials used in homebuilding, such as Canadian lumber. A September 2022 paper from the American Action Forum, a right-leaning think tank, found that the tariffs imposed by Trump in 2018 and 2019 (which were retained by Biden during his presidency) did in fact increase homebuilding costs.

There’s less precedent on immigration. Immigrants made up a record 25.5% share of the construction workforce in 2023, up from 19.9% in 2004, according to a recent report by the National Association of Home Builders analyzing Census Bureau data. Some worry that Trump’s promise of “mass deportation” could reduce the number of skilled workers in a sector that’s already desperately understaffed.

It remains to be seen whether Trump will be able to deliver on his policy proposals, some of which may benefit the housing sector. Deregulation, for instance, could make it easier for developers to increase construction and combat the housing supply shortage. For now, all we can do is wait and see how Trump’s second term unfolds.

[READ: 2025 Housing Forecast: Will Mortgage Rates Go Down?]

More from U.S. News

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2025 Housing Forecast: Will Mortgage Rates Go Down?

Historical Mortgage Rates: See Averages and Trends by Decade

Trump Promised Lower Mortgage Rates. Can He Deliver? originally appeared on usnews.com

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