What is the Long-Term Mortgage Rate Outlook Under the Trump Administration

As we settle into Donald Trump’s second term and the Republican control of both houses of Congress, mortgage professionals are keenly focused on the long-term trajectory of interest rates. While short-term volatility is expected, understanding the potential long-term trends is crucial for strategic planning and client advising.

Current Rate Environment

Before diving into predictions, let’s recap where we stand:

• The average 30-year fixed rate mortgage jumped to 6.79% according to Freddie Mac’s latest data.

• The Federal Reserve’s federal funds rate currently sits at 4.50%-4.75% after recent cuts.

Long-Term Rate Predictions

1. Mortgage Bankers Association (MBA) Forecast:

   — 2025: 6.4% to 6.6%

   — 2026: Stabilizing around 6.3%

2. Fannie Mae Projections:

   — 2025: 6.3%

   — 2026: Slightly above 6%

3. National Association of Realtors (NAR) Outlook:

   — Trump’s second term: 5.5% to 6.5% range

4. Realtor.com Expectation:

   — 2025: Hovering around 6%

5. First American Financial Corporation:

   — Suggests a potential decline to about 6%, but with caveats

Factors Influencing Long-Term Rates

Several key factors are shaping these predictions:

1. Fiscal Policy: Expectations of increased government spending and potential tax cuts could drive up 10-year Treasury yields, which closely influence mortgage rates.

2. Inflation Concerns: Trump’s proposed policies, including potential tariffs, might reignite inflation. This could force the Federal Reserve to maintain higher rates for longer.

3. GSE Reform: Plans to remove Fannie Mae and Freddie Mac from conservatorship by 2027 could lead to higher mortgage rates as these entities may need to hold more capital against riskier loans.

4. Regulatory Environment: Expected rollback of regulations enacted during the Biden years could potentially reduce costs for mortgage lenders, partially offsetting some upward pressure on rates.

5. Economic Growth: The pace of economic growth under Trump’s policies will play a crucial role in determining the Fed’s monetary policy stance.

What This Means for Mortgage Professionals

1. Prepare for a “higher-for-longer” rate environment: While rates are expected to eventually trend downward, they’re likely to remain elevated compared to pre-2022 levels for the foreseeable future.

2. Focus on adjustable-rate products: With long-term rates potentially remaining high, ARMs and other alternative products may become more attractive to certain borrowers.

3. Emphasize refinance opportunities: As rates potentially decrease over time, be prepared for refinance waves, albeit smaller than those seen in 2020-2021.

4. Stay informed on policy changes: Keep abreast of new housing policies, GSE reforms, and regulatory changes as they develop.

5. Client education is key: Help clients understand that while rates may be higher than in recent years, they remain historically reasonable. Focus on the overall affordability picture, including home prices and income levels.

Conclusion

While predictions suggest mortgage rates will remain elevated compared to the ultra-low rates seen in 2020-2021, the long-term trend is expected to gradually go downward. However, this decline is likely to be slower and from a higher starting point than initially projected before the election. Mortgage professionals should remain adaptable, stay informed about policy changes, and focus on individual client needs. By understanding these long-term trends and their driving factors, you’ll be better equipped to navigate the evolving landscape of the mortgage industry under the new administration.