MW Trump, and home buyers, could get their wish for lower mortgage rates - if markets cooperate

By Aarthi Swaminathan

The president could bring down mortgage rates if he manages to calm bond investors

High mortgage rates have challenged home buyers and stifled the housing market.

President Donald Trump's focus on the 10-year Treasury note is part of his effort to bring rates on home loans down and address the housing crisis.

Could it work?

Perhaps, experts told MarketWatch.

Earlier this week, Treasury Secretary Scott Bessent said during a media appearance that he and the president are focused on the yield on the 10-year Treasury BX:TMUBMUSD10Y as they seek to lower interest rates.

Bessent said Trump's policies would cut spending and create "noninflationary growth," which should keep bond yields from rising.

Bond yields are a big driver of mortgage rates.

But the key challenge for Trump and Bessent is that the direction of the yield on the 10-year Treasury note - and by extension, the 30-year mortgage rate - is something that financial markets drive, and which neither the president nor the Federal Reserve have direct control over.

Still, Trump could have an impact on both the 10-year yield and the 30-year mortgage rate with his policies on everything from taxes to tariffs, experts told MarketWatch.

"The market ultimately controls long-term rates," Kathy Bostjancic, chief economist at Nationwide Mutual Insurance, told MarketWatch.

Long-term rates refer to the 10-year Treasury note or bonds that are longer in duration.

White House policies or what the Fed does or doesn't do "definitely can influence it," she added, "but only [through] how the bond investors perceive that."

How the 10-year Treasury note is connected the 30-year mortgage rate

The Trump administration's attention to the 10-year Treasury - and mortgage rates - comes at a time when the U.S. housing market is mired in a crisis of affordability.

The typical home buyer is facing a high barrier to entry.

Home prices are at record highs, and the 30-year mortgage remains at an elevated 7% level. A potential buyer looking at a $380,000 home with a 30-year mortgage rate of 6.95% is facing a monthly mortgage payment of nearly $2,800, according to an analysis by Redfin $(RDFN)$, a real-estate brokerage.

High mortgage rates have crushed the housing market as a result. Sales of previously-owned homes have fallen to rock-bottom levels over the last two years, as buyers find low inventory and high mortgage rates to be a painful combination.

Read more: Why 2024 was arguably the toughest year for home buyers and sellers in 30 years

Lower mortgage rates could help thaw out a frozen housing market. A decrease in rates on home loans could jumpstart home-buying and refinance activity.

Trump campaigned on promises to lower mortgage rates to 3% or 2%. To be clear, lowering mortgage rates is not something that the Fed chair, or the president, can do by themselves.

Mortgage rates don't directly follow the direction of the Fed's benchmark short-term interest rate. Instead, they tend to move in tandem with the yield on the 10-year Treasury note, which rises when investors see inflation ahead. Lower mortgage rates can arrive via fiscal and monetary policy, when those policies affect the 10-year Treasury.

To be sure, even without Trump's declared focus on the 10-year, it's been relatively calm in spite of tension and uncertainty over his now-paused tariffs on Canada and Mexico. In fact, the 30-year mortgage inched down to a six-week low to an average of 6.89% as of Feb. 6, according to Freddie Mac.

Freddie Mac's weekly report on mortgage rates is based on thousands of applications received from lenders across the country that are submitted to Freddie Mac when a borrower applies for a mortgage.

What Trump needs to do to bring the 10-year yield down

Bessent said during his Fox Business appearance that the yield on the 10-year Treasury should be able to come down "naturally" as a result of Trump's policies.

Read more: Trump's focus on 10-year Treasury yield to cut borrowing costs raises curiosity - and problems

"President Trump's policies can and are having a large impact on 10-year yields, and consequently, mortgage rates," Chen Zhao, an economist at Redfin, told MarketWatch.

If Trump can ease concerns that the market has about the impacts of tariffs and tax cuts, that could bring down yields and rates.

"Investors are worried that those policies are inflationary and increase the supply of Treasuries," Zhao explained.

So "anything that the President does that helps to deflate these worries would, all else [being] equal, bring down 10-year yields. Backing away from policies that are inflationary would also allow the Fed to keep lowering rates, which would also help to bring down 10-year yields."

Bostjancic at Nationwide broadly agreed.

"The best way to lower 10-year yields is to have low inflation or inflation trending lower," she said, and for the markets to get a sense that federal deficits aren't going to get much bigger, or even decline.

Yields could also go lower if the financial markets sense that the U.S. economy is going to slow, which would cause the Federal Reserve to ease monetary policy.

Related: U.S. budget deficit swells to record $711 billion in first quarter of fiscal year

Some home buyers who are immune to higher mortgage rates are snapping up homes

Not all home buyers are stymied by high mortgage rates.

Some homeowners who have the ability to pay cash are selling their properties and snapping up homes, Lisa Sturtevant, chief economist at Bright MLS, said in a statement.

More than one in five transactions in the fourth quarter of 2024 was an all-cash sale, according to the company's data in the areas it serves.

"With rates remaining near 7% for now, buyers who can come to the table with cash are going to be even more advantaged," Sturtevant said, "which means that the share of cash buyers in the market could increase during the first quarter of the year."

-Aarthi Swaminathan

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February 07, 2025 16:41 ET (21:41 GMT)

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