President-elect Donald Trump inherits a housing market that is nothing like it was during his first term.
Affordability, as measured by average home prices and mortgage rates, has worsened significantly and is affecting consumer attitudes toward the overall economy.
Buying and selling activity has slowed sharply as homeowners stay put to avoid giving up the low-rate mortgages they secured through 2022. Existing home sales are expected to reach their lowest point in nearly 30 years in 2024.
The average 30-year fixed mortgage rate was over 7%, compared with 4.09% at the start of his first term. Compared with early 2017, a family with a 20% down payment on a $400,000 home now pays $594 per month.
Even finding a home at this price is increasingly challenging. The median sales price of a home in the United States is $420,400, 35% higher than before Trump's first term. So, the median home price is $310,900.
Read more: Housing market in 2025: Is now a good time to buy a home?
The incoming Trump administration has promised to slash mortgage rates and home prices through mass deportations of undocumented immigrants and loosening federal regulations on construction and land use.
But economists and housing market experts say sweeping changes are far from simple, and some of Trump's proposed policies, such as tariffs, risk worsening inflation and housing affordability.
“I don’t know how President Trump is going to lower interest rates, certainly not through higher tariffs, deportations and deficit-funded tax cuts,” said Mark Zandi, chief economist at Moody’s Analytics. Everything is very inflationary.”
Pandemic-related supply chain disruptions have made many components of home construction more expensive, causing home prices to rise rapidly in recent years.
Trump's pledge to impose 25% tariffs on imports from Canada and Mexico and an additional 10% on imports from China has many economists worried that the problem will get worse.
The National Association of Home Builders, a trade group, estimates that 7%, or $13 billion, of materials used in home construction will be imported in 2023. The industry relies on Canada for much of its lumber, Mexico for the lime and gypsum used in plaster, and China for appliances.
Trump said mass evictions would reduce housing demand and free up more space for citizens.
While undocumented immigrants need their own places to live, economists say deportations could ultimately further damage the housing supply because many immigrants work in construction. According to NAHB, nearly one-third of the construction workforce is foreign-born. In California, where the housing crisis is particularly severe, immigrants make up 41% of the workforce.
“The inputs in building housing are materials, labor and capital,” said Stijn Van Nieuwerburgh, a professor of real estate and finance at Columbia University Business School.
"Looking at all three, the risk is significant that costs will increase, making construction more difficult."
Policies such as tariffs and tax cuts favored by Trump could also force the Fed to keep interest rates higher for longer to avoid overheating the economy and generally pushing up prices.
The impacts mean mortgage rates could also stay at 7% or higher, while homebuilders themselves could face higher financing costs.
Read more: Mortgage Types in 2025
Another top priority for Trump is the possible lifting of federal regulations on mortgage giants Fannie Mae and Freddie Mac.
Fannie Mae and Freddie Mac, which prop up the mortgage market by buying loans and packaging them into bonds to sell to investors, have been under government control since a near-collapse in 2008 during the subprime mortgage crisis. Financial industry groups and investors have been advocating for them to exit the arrangement as the companies' fortunes improve as the housing market recovers.
Trump took steps to free the companies during his first term but ultimately ran out of time to complete the highly complex effort.
Even this time, any plan is likely to be lengthy: The companies will need time to raise capital levels to meet regulatory requirements, and any IPO for these companies would be orders of magnitude the largest ever.
The White House also must balance how to free up the companies without disrupting the $12 trillion mortgage business.
Under regulation, Fannie Mae and Freddie Mac receive implicit support from the U.S. government and enjoy the nation's highest credit ratings, which allows them to borrow money cheaply and lower mortgage rates for consumers.
Outside of regulation, it's unclear what type of government guarantees, if any, the companies will receive, and any shift could lead to higher borrowing costs. Fitch Ratings analysts said in a note last week that exiting regulation could bring "increasingly negative credit implications" to the companies, but that ratings firms must assess any future financial support they receive.
Claire Boston is a senior reporter at Yahoo Finance, covering housing, mortgages, and home insurance.
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