LOS ANGELES (AP) — Donald Trump’s election victory is clouding the outlook for mortgage rates even before he returns to the White House.

The president-elect campaigned on a promise to make homeownership more affordable by lowering mortgage rates through policies aimed at eliminating inflation. But his proposed economic agenda could potentially set the stage for a rise in mortgage rates, some economists and analysts say.

Mortgage rates are affected by several factors, including movements in 10-year U.S. Treasury yields, which lenders use as a guide to pricing home loans. Treasury yields have risen in recent weeks even after the Federal Reserve cut interest rates on all types of loans, which affects interest rates on all types of loans, including mortgages. Investors appeared to be wondering how much the Fed should cut rates given the strength of the economy.

Then yields rose further immediately after Trump’s victory, pushing up the average interest 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 expect higher rates under the Trump administration and are already starting to position themselves in that direction,” said Danielle Hale, chief economist at Realtor.com. “So if general interest rates were higher, that would generally mean that mortgage rates would also rise.”

Trump says he wants to impose tariffs on foreign goods, cut tax rates and loosen regulations, policies that could boost the economy but also fuel inflation and increase the U.S. national debt — and, some economists say, would lead to higher interest rates and in turn higher mortgage rates.

“Trump’s fiscal policies are expected to lead to rising and more unpredictable mortgage rates through the end of this year and into 2025,” said Lisa Sturtevant, chief economist at Bright MLS, which no longer predicts the average interest rate on a 30-year home. loan will fall below 6% next year.

Homebuilding industry analysts at Raymond James and Associates see mortgage rates “staying higher for longer” given the outcome of the election. They also said in a research note last week that first-time homebuyers “will likely face even greater affordability challenges this spring,” which is typically the peak 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 continue to reach near-record highs despite a housing market. sales decline dating back to 2022.

High mortgage rates and high prices have put homeownership out of reach for many first-time buyers. According to data from the National Association of Realtors, they accounted for just 24% of all homes purchased between July 2023 and last June, an all-time low dating back to 1981. Before 2008, the share of first-time buyers was historically 40%.

As more Americans have to give up their homeownership or delay purchasing a home, they are missing out on potential gains from home equity growth, which has historically been a strong driver of personal wealth.

Additionally, higher mortgage rates may deter current homeowners from selling. Although the average interest rate on a 30-year home loan has fallen from a 23-year high of nearly 8% last year, it remains too high for many potential sellers. According to Realtor.com, more than four in five homeowners with a mortgage have an existing rate of less than 6%.

Last week’s rise in bond yields likely reflects investor expectations that Trump’s proposed economic policies would widen the federal budget deficit and fuel inflation.

The nonpartisan Committee for a Responsible Federal Budget predicts that Trump’s proposals will increase the federal budget deficit by $7.75 trillion over the next decade.

To pay the interest on that debt, the government will probably have to issue more bonds, such as government bonds with a ten-year term. That could lead investors to demand higher yields, or the returns they receive for their investments in the bonds. As interest rates rise, that would increase mortgage rates.

If inflation were to rise again, the Fed may have to pause the interest rate cuts it started in September. Annual inflation has fallen from a peak of 9.1% in 2022 to a low of 2.4% in 3.5 years after the Fed raised interest rates to their highest level in decades.

Although the central bank does not set mortgage rates, its actions and the trajectory of inflation influence movements in 10-year Treasury yields. The central bank’s policy pivot is expected to eventually pave the way for a general decline in mortgage rates. But that could change if the next government’s policies send inflation into overdrive again.

“The general expectation is still that there are a lot of reasons to expect mortgage rates could fall, but the policy is a pretty big wildcard,” says Realtor.com’s Hale.

Predicting mortgage interest rate developments is difficult as interest rates are influenced by many factors: from government spending and the economy to geopolitical tensions and fluctuations in the stock and bond markets.

Leading up to the election, housing economists had generally expected the average interest rate on a 30-year mortgage to fall to about 6% by the end of this year and fall further next year. Now, economists at the Mortgage Bankers Association and Realtor.com expect average rates to hover around 6% next year, while those at First American say it’s possible rates could drop to around 6%, but that’s not a given.

Redfin’s head of economic research, Chen Zhao, meanwhile, has said: “It’s quite difficult to imagine mortgage rates below 6% next year unless we have a recession.”

The National Association of Realtors estimates that the average interest rate on a 30-year mortgage will hover between 5.5% and 6.5% during Trump’s second term.

“If the Trump administration can put together a credible plan to reduce the budget deficit, mortgage rates could come down,” said Lawrence Yun, NAR’s chief economist.

Regardless, don’t expect mortgage rates to return to the lows of Trump’s first term, which began in late January 2017 and ended four years later.

At the time, the average interest rate on a 30-year mortgage ranged from a record low of 2.65% to 4.94%. Mortgage rates fell sharply in the final year of Trump’s first term as the economic fallout from the COVID-19 pandemic led investors to seek the safety of U.S. Treasury bonds, causing their yields to fall sharply.