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MortgagePoint » Your Trusted Source for Mortgage Banking and Servicing News 28 January 2025 C O V E R S T O R Y also mean that the government will no longer benefit from the enormous prof- its that the GSEs have been generating, which seems unlikely while the federal deficit continues to increase. From a practical standpoint, it doesn't seem likely that the conservatorship could be unwound carefully and without damaging the mortgage industry in the two years the Administration has before the mid-term elections. Historically, the incumbent party almost always loses either the House or the Senate during the mid-terms, and it seems unlikely that a divided Congress would pass legislation to end the conservatorship. Lisa Sturtevant Chief Economist, Bright MLS We should expect more volatility in the housing market in the near term, as Donald Trump becomes only the sec- ond president to win non-consecutive terms. Over the longer term, homeown- ership could become harder to attain for first-time and moderate-income home- buyers, as his policies favor high-income individuals and existing homeowners. Trump's fiscal policies can be expected to lead to rising and more un- predictable mortgage rates through the end of this year and into 2025. Signals of higher mortgage rates are already out there in the form of rising yields on the 10-year Treasury. Bond yields are rising because investors expect Trump's pro- posed fiscal policies to widen the federal deficit and reverse progress on inflation. An independent analysis shows that Trump's proposed fiscal policies will widen the federal deficit by an estimat- ed $7.5 trillion over the next decade. To pay interest on the mounting federal debt, the government has to issue more Treasury bonds. Investors have already driven yields on Treasury bonds up, demanding a higher return with the expectation of higher deficits. Mortgage rates will closely follow yields on the 10- year Treasury bonds and will also likely increase in the weeks ahead. Furthermore, despite Trump's rhet- oric during the campaign that he was the candidate who would bring prices down, the combination of his proposals around tax cuts, tariffs, and immigration will lead to higher inflation. A reversal in inflation, which has been falling for most of the past two years, would complicate the Federal Re- serve's rate-cutting decisions. If the Fed holds back on rate cuts, mortgage rates could remain higher for longer. There is also a greater risk of uncer- tainty about monetary policy under a Trump presidency. During the cam- paign, he repeatedly claimed that he would force the Fed to cut interest rates. The Fed does not control long-term bor- rowing costs directly but has an impact on those rates through a combination of short-term rate setting and bond pur- chases. The market has come to expect a central bank that makes decisions in- dependent of Presidential interference. Pressure from the executive branch on Fed decision-making would introduce unpredictability, likely leading to more turbulence in the mortgage market. Other policies proposed by Trump will make homeownership harder to attain, particularly for first-time, first-generation, and more moderate-in- come homebuyers. His mass depor- tation proposal would have a chilling effect on the construction industry, shrinking the already constrained labor force and stalling badly needed new housing construction. At the same time, proposed tariffs will increase building costs. Limited inventory will keep home prices high and will continue to sideline many first-time buyers. The housing market was just be- ginning to feel as though it was moving more toward balance following the unprecedented impacts of a global pan- demic and related responses. Heading into the election, inflation was coming down, mortgage rates had been easing, and more inventory was coming onto the market. The next few months could be a challenging time for prospective homebuyers. "We should expect more volatility in the housing market in the near term, as Donald Trump becomes only the second president to win non- consecutive terms." —Lisa Sturtevant, Chief Economist, Bright MLS