MW Trump has vowed lower housing prices. Mortgage rates stand in the way.

By Aarthi Swaminathan

Mortgage rates inched down this week, but they remain elevated. That's an obstacle for many potential home buyers.

Mortgage rates inched down in the first week of President Trump's second term, as the financial markets assess the economic impact of his policies.

A perception that Trump may be softer than expected on tariffs pushed the average 30-year mortgage rate down to 6.96% on Jan. 23, the first decline in six weeks, according to data released by Freddie Mac on Thursday.

That was down 8 basis points from the previous week - one basis point is equal to one-hundredth of a percentage point. A year ago, the 30-year was lower, averaging at 6.69%.

Home buyers in search of a house they can afford still face an uphill battle. Mortgage rates remain relatively elevated, especially compared with where they were the last time Trump took office.

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.

Separate data from Mortgage News Daily showed that the 30-year fixed-rate mortgage averaged 7.08% as of Thursday afternoon.

Why are mortgage rates falling now?

Mortgage rates are falling as the financial markets assess the likelihood of Trump being softer on the tariffs than he indicated he would be during his campaign for president.

Economists at real-estate brokerage Redfin $(RDFN)$ expect mortgage rates to continue to fall if Trump is less aggressive than expected on tariffs on imports.

Real-estate platform Realtor.com also expects further relief on mortgage rates. "This week's release from Freddie Mac will hopefully calm the fears of prospective buyers who had watched mortgage rates climb for five consecutive weeks, encouraging them that more stability is ahead," Joel Berner, a senior economist at Realtor.com, said.

(Realtor.com is operated by News Corp subsidiary Move Inc. MarketWatch publisher Dow Jones is also a subsidiary of News Corp.)

Others remain skeptical that rates will continue to trend downward. Brace for volatility, Bob Broeksmit, president and chief executive of the Mortgage Bankers Association, said in a statement.

"Economic and monetary policy uncertainty and inflationary concerns will likely keep mortgage rates elevated for the near future," he added.

What Trump has promised to do on home prices

In his first week as president, Trump addressed the housing affordability crisis in an executive order.

He attributed the high cost of housing to regulatory requirements that he said account for 25% of the cost of constructing a new home. That number is based on research by the National Association of Home Builders, which has been vocal about regulatory burdens on home builders.

The details of Trump's plans to cut housing prices are yet to be announced. In the executive order, Trump ordered government agencies to deliver "emergency price relief" and take action to lower the cost of housing and expand the housing supply.

Read more: Trump's pick to lead HUD faces the least affordable housing market in recent history. 3 takeaways from his confirmation hearing.

Why builders can't build more housing

Developers want to build more homes where people want to live, and where they can build quickly.

They're not able to meet home-buying demand due to extensive and sometimes unpredictable processes for getting building permits and approvals, Cameron LaPoint, an assistant professor of finance at the Yale School of Management, told MarketWatch.

Zoning rules at the local level set minimums on how big a lot can be, or what kind of home can be built on the land.

Trump could nudge local governments to improve the permitting process and make it easier for builders to apply and get approvals to build new homes, LaPoint said.

What this means for home buyers

Even if Trump encourages more housing supply, higher mortgage rates are still a big roadblock for many home buyers.

Expect the 30-year mortgage to finish the year at an average of 6.5%, housing-finance giant Fannie Mae (FNMA) said in its January forecast for the housing market.

The median price of a home sold in the U.S. was $406,100 as of November, the latest month for which data was available from the National Association of Realtors. Home prices were up nearly 5% from the same month a year ago.

To afford a home at that price point at the current average mortgage rate of nearly 7%, a buyer would need to make at least $120,000 with a 10% down payment. For many renters, that's too high of a bar, which has pushed some to rent for longer.

For that reason, Fannie Mae expects another year of "sluggish" home sales. "On a national level the 2025 housing market is shaping up to feel a lot like 2024," Mark Palim, the agency's chief economist, said. Home sales in 2024 were exceptionally slow, and appeared to be on track to be the slowest year for home sales since 1995, according to the most recent data.

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-Aarthi Swaminathan

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January 23, 2025 12:29 ET (17:29 GMT)

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