There’s a lot complicating Richard M. Pannone’s work life right now.
As director of capital markets at Province Mortgage Associates Inc. in East Providence, Pannone is always examining economic data, financial indicators, political news and even weather forecasts to decode what the future holds for his company.
Mortgage rates have edged up in recent months, from about 6.25% on a 30-year fixed home loan in early September to about 7% in mid-November, even as inflation has cooled and the Federal Reserve lowered its benchmark rate following Donald Trump’s presidential election victory.
Reading the signals, Pannone says he doesn’t see rates going much higher for now.
“The feeling is we’ve sort of hit the ceiling,” Pannone said recently. “The market has digested [Trump’s] proposed policies.”
Others may not be so sure.
For many, Trump’s election win is clouding the outlook for mortgage rates even before he gets back to the White House.
He campaigned on a promise to make homeownership more affordable by lowering mortgage rates through policies aimed at knocking out inflation. But his proposed economic agenda could potentially set the stage for mortgage rates to move higher, some economists and analysts say.
Mortgage rates are influenced by several factors, including moves in the yield for U.S. 10-year Treasury bonds, which lenders use as a guide to price home loans.
Treasury yields rose in recent weeks even after the Federal Reserve cut its benchmark interest rate, which influences rates on all types of loans, including mortgages. Investors appeared to question how far the Fed should cut rates given the strength of the economy.
Then yields surged further immediately after Trump’s victory, sending the average rate on a 30-year mortgage up to 6.79%, according to mortgage buyer Freddie Mac.
“Given what we’re seeing in bond markets, investors are expecting higher rates under a Trump administration and are starting to position in that direction already,” said Danielle Hale, chief economist at Realtor.com. “So, if overall rates are higher, that would tend to also mean that mortgage rates would move higher, too.”
Pannone sees it differently.
He’s predicting that mortgage rates will slip into the “low sixes” in the second quarter and could sink below 6% after that. He acknowledges that inflation, while having cooled, can still be rekindled.
“All of it might cause the Fed to change its plan to lower its own rate,” he said.
While the central bank doesn’t set mortgage rates, its actions and the trajectory of inflation influence the moves in the 10-year Treasury yield. The central bank is expected to eventually clear a path for mortgage rates to generally go lower. But that could change if the next administration’s policies send inflation into overdrive again.
Indeed, Trump has said he wants to impose tariffs on foreign goods, lower tax rates and lighten regulations, policies that could rev up the economy but also fuel inflation and increase U.S. government debt – and, say some economists, lead to higher interest rates and, in turn, higher mortgage rates.
“Trump’s fiscal policies can be expected to lead to rising and more unpredictable mortgage rates through the end of this year and into 2025,” said Lisa Sturtevant, chief economist with Bright MLS, who no longer forecasts the average rate on a 30-year home loan to dip below 6% next year.
Homebuilding sector analysts at Raymond James and Associates see mortgage rates remaining “higher for longer,” given the outcome of the election. They also said in a recent research note that first-time homebuyers “are likely to face even greater affordability challenges this spring,” typically the peak sales season of the year for homebuilders.
Higher mortgage rates can add hundreds of dollars a month in costs for borrowers, reducing their purchasing power at a time when home prices remain near record highs despite a housing market sales slump dating back to 2022.
Elevated mortgage rates and high prices can keep homeownership out of reach for many first-time buyers. What’s more, higher mortgage rates can discourage current homeowners from selling. While the average rate on a 30-year home loan has come down from a 23-year high of nearly 8% last year, it remains too high for many potential sellers. More than 4 in 5 homeowners with a mortgage have an existing rate below 6%, according to Realtor.com.
Still, Pannone says home sales have climbed in the weeks following the election, an indication that the political uncertainty is no longer holding back some homebuyers.
“We’re seeing buyers coming off the fence,” he said. “Confidence is improving.”
He has also seen forecasts for a milder winter, which he hopes will help boost home sales heading into next spring.
He says Province is seeing some clients who are surprised that mortgage rates have edged up in recent months despite the Fed lowering its rate. But such developments aren’t stopping sales, Pannone says.
A house purchase “is emotional,” a transaction in which slightly higher mortgage rates won’t kill deals, he said.
In the long term, Pannone is confident that mortgage rates will decline, despite the uncertainty of a new presidential administration. The economic trends “are going in the right direction,” he said.
