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The housing market is experiencing a significant decline in turnover due to high house prices and high mortgage interest rates, which fluctuate around 7%.
The challenging environment has driven many potential buyers out of the market, especially first-time homebuyers, whose shares are at a 43-year low.
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Billionaire Elon Musk’s actions are a potential factor that could impact mortgage rates, according to Lawrence Yun, chief economist at the National Association of Realtors.
Yun suggests that Musk’s recent moves, especially those involving Tesla and X (formerly Twitter), could have an impact on market sentiment and interest rates.
While the exact mechanisms are complex, Musk’s influence extends beyond the technology industry. His actions could have broader economic implications and his decisions could determine future mortgage rates and the overall housing market.
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“Overall inflation is normalizing and the Federal Reserve may move away from its current restrictive monetary policy, meaning further cuts in short-term interest rates in the coming months,” Yun told MarketWatch.
The October Consumer Price Index (CPI) report showed a 2.6% increase year-on-year, with housing costs accounting for a significant portion of the increase. While this marks a decline from the peak inflation rate of nearly 9% in June 2022, the Fed’s proposed target of 2% inflation remains elusive.
The Fed’s aggressive rate hike campaign in 2022 aimed to curb inflation, but it’s important to note that mortgage rates are not directly tied to the federal funds rate. Instead, they track 10-year Treasury yields, often influenced by market expectations about future Fed actions.
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As market participants weigh the potential impact of various economic factors, including ongoing geopolitical tensions and fiscal policy, 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 an important strategy to alleviate high mortgage rates. Although the Federal Reserve is independent, the government’s fiscal policies, such as taxes and spending, can indirectly influence interest rates.
Yun expressed concern about the potential inflationary impact of tariffs and budget deficits. With tax cuts likely under new President Donald Trump, he emphasized the need for significant spending cuts to keep the budget deficit under control.
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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 remove bureaucratic hurdles and improve government performance, could contribute to fiscal discipline and indirectly impact interest rates.
However, the success of this venture 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 impact on economic and financial markets.
Analysts have questioned the potential impact of Musk and Ramaswamy’s appointments, noting that Congress has ultimate control over the federal budget and often ignores proposals from the White House.
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During his campaign, Trump promised to cut mortgage rates to 2%, a level last seen during the pandemic. The Federal Reserve cut its benchmark interest rate at the time in response to economic disruptions caused by widespread shutdowns and suppressed activity.
Yun noted in a Nov. 8 speech at a NAR conference that mortgage rates averaged around 4% during Trump’s first term. This historical context is in stark contrast to the high interest rates that have dominated the housing market in recent years, driven by the Fed’s tightening monetary policy to combat inflation.
“Are we going to go back to 4%? According to my prediction, unfortunately we won’t,” Yun said. “It’s more likely we’ll go back to 6%. That will be the new normal, around 5.5%-6.5%.”
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This article One Economist Thinks Elon Musk Holds the Key to Affordable Mortgages – Here’s Why it originally appeared on Benzinga.com
