While mortgage rates have already seen some improvement since the election dust settled, they remain quite elevated.
At last glance, the 30-year fixed was hovering around 6.875%, down about 0.25% from its recent highs.
It’s been a good few days, but rates are still at least 0.75% higher than they were in mid-September.
The reason they’re higher is up for debate, but I believe most of the move higher was driven by the expectation Trump would win the election.
Simply put, his policies are expected to be inflationary. And inflation is bad for mortgage rates. The question is can rates continue to improve before he gets into office in January?
Mortgage Rate Movement Might Be Limited During the Presidential Transition
The United States will celebrate its 60th presidential inauguration on Monday, January 20th, 2025 in Washington, D.C.
That’s roughly 70 days from now. While we will undoubtedly hear lots of speculation about Trump’s policies for his second term, it’ll be just that.
It won’t be until he’s in office that we’ll know more concrete details. So that uncertainty might restrict the movement of mortgage rates for the next few months.
Even once he’s in office, we could still be awaiting answers on policy questions, such as tariffs and tax cuts and other objectives.
As it stands now, most market participants expect Trump’s second term to be an inflationary one, due to those expected policies.
For example, tariffs on things like lumber and steel could increase the cost of home building, and could be compounded by deportations of industry workers.
Apparently, there are something like 1.5 million undocumented workers in the home building sector.
If they were removed from the country, you could have a situation where American workers demand higher wages. That increases both the cost of new homes and increases wages for workers.
It all basically points to more inflation. The big question though is if it’s actually going to happen.
It’s one thing to say it, and another to actually do it. Remember, Trump also promised to make housing much more affordable and said mortgage rates would return to 3%, possibly even lower.
Government Spending vs. the State of the Economy
So with Trump’s policies up in the air until at least late January, we will only be able to rely upon rumors and economic data to determine the path of mortgage rates.
For me, it becomes a tug-o-war of Trump’s expected inflationary policies versus the economic data that is released from now until then.
This includes things like the CPI report, PPI, the jobs report, and of course the Federal Reserve’s preferred inflation measure, the Personal Consumption Expenditures (PCE) price index.
The PCE report is used to capture inflation (or deflation) by looking at the price change of goods and services purchased by consumers in the United States.
This economic data has driven mortgage rates for much of the past several years since the Fed stopped purchasing mortgage-backed securities (MBS) under its Quantitative Easing (QE) program.
But it seemed to get derailed in mid-September after the Fed pivoted to its first rate cut.
While a rosier-than-expected jobs report did get released around that time, my suspicion is the election pushed rates higher over the past seven weeks or so.
Bond traders paid more attention to the election than the economic data, evidenced by a really weak jobs report released the first week of November that everyone basically overlooked.
Now that the election is decided and much of Trump’s inflationary policies appear to be already baked in (higher mortgage rates), I believe those economic reports will matter again.
Sure, we’ll hear stuff from Trump daily until he’s inaugurated, but actual data should take center stage again.
And if you recall, weak economic data leads to lower mortgage rates, and vice versa. So if we get softer inflation reports and/or higher unemployment, rates should move lower.
The opposite is also true if inflation heats up again, or jobs/wages somehow come in stronger.
Mortgage Rates Might Be Range-Bound for a While
The takeaway here is that I feel like we’ll be stuck in a range for a while until Trump actually gets into office.
There are just too many unknowns during a presidential transition, especially this one with Trump’s big promises.
As such, I expect the bond market to remain very defensive until the picture becomes a lot clearer.
Defense means bond yields are less likely to fall, even if they theoretically “should.”
Mortgage lenders always take their time lowering rates (and are quick to raise them), but they might take even more time than usual given the situation at hand.
The caveat is if economic data comes in well below expectations.
If inflation turns out to be even cooler than expected in the coming months, and unemployment higher than expected, you could see mortgage rates drop quite a bit from current levels.
But they will likely face a bigger uphill battle than usual, at least in the interim, given the sweeping policy changes expected under Trump’s new administration.
Read on: How to track mortgage rates using the 10-year bond yield.
Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.
