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“Decisions made during the period of ultra-low interest rates coming out of the pandemic are still shaping behavior,” said Torsten Slok, the chief economist at Apollo Global Management, citing the reticence of those with low-rate mortgages to move. “The shift to higher rates has fundamentally changed the economics.”
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Home sales had been expected to pick up during the spring selling season, akin to retail’s holiday stretch. There are tentative signs of improvement in the market, with pending sales rising for three straight months and new listings increasing. But demand is stuck at historically low levels, with the pace of closings last month more than 20% below what they were in April 2019, before the pandemic hit.
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Nick Barta, a regional manager at Security First Financial, a mortgage company in Englewood, Colorado, said the spike in rates has had a chilling effect. In February, he was seeing more business than he had in four years as customers refinanced or considered buying again. Then it slowed virtually overnight.
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“All you hear about is gas prices and higher interest rates,” said Barta, who has worked in the mortgage industry for 38 years. “It freaks people out.”
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The trend has been both a drag on the broader economy and a political liability for Trump, who won re-election partly due to an inflation surge fueled by the unprecedented stimulus that kept the economy afloat during the pandemic.
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Treasury Secretary Scott Bessent last year expressed confidence that bond yields would come down as the administration reduced spending, lowered energy prices and unleashed a period of non-inflationary growth. But Trump’s tax cuts, tariffs and war in Iran have had the opposite effect by adding to the federal debt and rekindling inflation.
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At the same time, the rise in gas prices is taking a toll on consumer confidence, which has tumbled to a record low. An April Gallup poll found that inflation, housing and energy prices are the three biggest financial worries for US households.
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“The vibes right now are not great,” said Jake Krimmel, senior economist at Realtor.com.
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Early this year, Trump directed Fannie Mae and Freddie Mac to start buying $200 billion of mortgage-backed securities in an effort to nudge mortgage costs lower. Federal Housing Finance Agency Director William Pulte, who oversees the firms, said the Trump administration is monitoring mortgage rates and remains focused on supporting the housing market.
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“FHFA and the administration are actively evaluating a range of tools and policy options to improve affordability and expand access to homeownership for American families,” he said.
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Trump has also repeatedly criticized the Fed for not lowering rates. A half-percentage-point drop in mortgage costs would make homeownership possible for roughly 3 million more Americans, according to the National Association of Realtors. About 10% of those newly eligible buyers would likely purchase a home within 12 to 18 months, the group said.
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Yet even with Trump ally Kevin Warsh set to take over the central bank on Friday, traders are betting the Fed is done cutting and is virtually certain to start raising rates by early next year.
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As a result, market rates are already ticking up. That’s leaving a generation of would-be home buyers locked out of the market, said Sarah Wolfe, a senior economist at Morgan Stanley Wealth Management.
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“They want the same things as the generation before them,” she said, “and the bar to entry is getting higher and higher.”
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That’s a shift from recent decades. Rates started falling in the early 1980s. After the dot-com bust drove the US into a recession, the lower interest rates orchestrated by the Fed helped trigger a housing boom. When that collapsed, rates fell again, and after Covid hit, further still.
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