"Trump Would Be Different, I Expected..." Mortgage Rates Likely to Stay High Next Year

Housing Market Cold Spell Expected to Continue

There are forecasts that mortgage rates will remain high and the housing market downturn will continue even after the launch of Donald Trump's second term administration next year.

According to Bloomberg News on the 20th (local time), real estate experts are raising their mortgage rate forecasts for next year due to various economic policies of U.S. President Donald Trump, who will enter the White House next year.

Real estate brokerage Redfin raised its average forecast for 30-year fixed mortgage rates next year from 6.1% to 6.8% on the 8th. Capital Economics predicted that the 30-year fixed mortgage rate will remain at a high level around 7% until the end of this year and will only fall by 0.25 percentage points by the end of next year.

Moody's Analytics also predicted that the 30-year fixed mortgage rate will remain at 7% next year. In the U.S., a 7% mortgage rate is considered a critical threshold that threatens the housing market recovery.

According to the Mortgage Bankers Association, the 30-year fixed mortgage rate was 6.9% as of the previous day, marking eight consecutive weeks of increase. Despite the Federal Reserve, the U.S. central bank, lowering the benchmark interest rate in September for the first time in four and a half years, mortgage rates have soared contrary to market expectations.

Mortgage rates move in tandem with the U.S. 10-year Treasury bond yield. The 10-year Treasury yield sharply rose as the possibility of Trump's victory increased before the election and after his win was confirmed.

The 10-year Treasury yield rose from a low of 3.6% in September, the lowest since May last year, to recently 4.4%. The rise in Treasury yields is due to inflation reigniting from tariffs under the Trump second-term administration and growing concerns over fiscal deficits due to tax cuts.

Bloomberg also observed that Trump's policy of deporting illegal immigrants will worsen the housing supply shortage, as a significant portion of the workforce in housing construction sites consists of illegal immigrants.

If the shortage of housing inventory accelerates due to this, it will be even more difficult to control the skyrocketing housing prices. According to the Federal Housing Finance Agency, the U.S. House Price Index in August reached a record high of 427, up 3.7% year-on-year.

Housing transactions, which had rebounded in July, have entered a downward trend again. According to the National Association of Realtors (NAR), existing home sales in the U.S. in September decreased by 0.5% from the previous month to 3.84 million units (seasonally adjusted annual rate), marking two consecutive months of decline following August.

Thomas Ryan, North America economist at Capital Economics, said, "There was a forecast that mortgage rates would gradually decline due to the benchmark interest rate cut, but it no longer seems likely. The U.S. housing market will remain frozen longer than economists had expected."