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The housing market is grappling with a significant decline in sales due to high home prices and elevated mortgage rates, which hover around 7%.
The challenging environment has forced many potential buyers out of the market, particularly first-time homebuyers whose share has hit a 43-year low.
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According to National Association of Realtors Chief Economist Lawrence Yun, one potential factor that could influence mortgage rates is billionaire Elon Musk’s actions.
Yun suggests that Musk’s recent moves, particularly those related to Tesla and X (formerly Twitter), could impact market sentiment and interest rates.
While the exact mechanisms are complex, Musk’s influence extends beyond the tech industry. His actions can have broader economic implications and his decisions could shape future mortgage rates and the overall housing market.
“The overall inflation rate is normalizing and the Federal Reserve can move away from its current restrictive monetary policy, which means further cuts to the short-term interest rate in upcoming months,” Yun told MarketWatch.
That could force mortgage rates down.
The October consumer price index (CPI) report showed a 2.6% year-over-year increase, with housing costs driving a significant portion of the rise. While this marks a decline from the peak inflation rate of nearly 9% in June 2022, the Fed’s suggested target of 2% inflation remains elusive.
The Fed’s aggressive rate-hiking campaign in 2022 aimed to curb inflation, but it’s important to note that mortgage rates aren’t directly tied to the federal funds rate. Instead, they track the 10-year Treasury yield, often influenced by market expectations of future Fed actions.
As market participants weigh the potential impact of various economic factors, including ongoing geopolitical tensions and fiscal policies, the trajectory of interest rates remains uncertain. This uncertainty could lead to further fluctuations in mortgage rates, making it challenging for homebuyers and refinancers to accurately predict future costs.
Yun suggests that addressing the federal deficit could be a key strategy to mitigate high mortgage rates. While the Federal Reserve is independent, government fiscal policies, such as taxation and spending, can indirectly influence interest rates.
Yun expressed concern about the potential inflationary impact of tariffs and budget deficits. Since tax cuts are likely under President-elect Donald Trump, he emphasized the need for significant spending cuts to control the deficit.
Trump recently appointed Musk and Vivek Ramaswamy to streamline government operations and reduce costs to lead the newly formed Department of Government Efficiency. The initiative, which aims to eliminate bureaucratic hurdles and improve government performance, could contribute to fiscal discipline and, indirectly, impact interest rates.
The endeavor’s success, however, will depend on Musk and Ramaswamy’s ability to deliver tangible results within a relatively short time frame. Their appointment has generated significant interest and speculation about the potential economic and financial market implications.
Analysts have cast doubt on the potential impact of Musk and Ramaswamy’s appointment, noting that Congress holds ultimate authority over the federal budget and often disregards White House proposals.
During his campaign, Trump pledged to lower mortgage rates to 2%, a level last seen during the pandemic. The Federal Reserve slashed its benchmark interest rate at that time in response to economic disruptions caused by widespread closures and suppressed activity.
Yun noted in a Nov. 8 speech at a NAR conference that mortgage rates during Trump’s first term averaged around 4%. This historical context contrasts sharply with the high rates that have dominated the housing market in recent years, driven by the Fed’s tightening monetary policies to combat inflation.
“Are we going to go back to 4%? Per my forecast, unfortunately, we will not,” Yun said. “It’s more likely that we’ll go back to 6%. That will be the new normal, bouncing around 5.5%-6.5%.”
While Realty Income is undoubtedly a solid choice for investors seeking consistent monthly dividend income, it’s important to remember that publicly traded stocks are subject to market volatility. For those looking to diversify their income streams and potentially reduce exposure to market fluctuations, real estate investing through platforms like Arrived is worth considering.
