Could Elon Musk hold the key to lower mortgage rates?
Home sales are at multi-decade lows due to high home prices and 7% mortgage rates.
Many buyers have been priced out of the market. The share of first-time homebuyers in the housing market has fallen to the lowest level in 43 years, according to recent data from the National Association of Realtors.
Against this backdrop, some buyers might be looking forward to lower mortgage rates as one way to improve their chances of buying a house.
And the key to lower mortgage rates could be in billionaire Elon Musk’s hands, the NAR’s chief economist Lawrence Yun said Wednesday in a statement after the release of the latest inflation data.
“The overall inflation rate is normalizing, and the Federal Reserve can move away from its current restrictive monetary policy,” Yun said, “which means further cuts to the short-term interest rate in upcoming months.” And that could pressure mortgage rates down.
Yun was referring to the consumer-price index in October, which rose 2.6% from a year ago, with the housing component accounting for over half of the increase .
Despite an uptick in October, the overall trend still shows stabilizing prices, Yun said. The inflation rate has come down from a recent peak in June 2022, when consumer prices rose nearly 9% on an annual basis.
The Federal Reserve started raising its benchmark rate in 2022 to try to tamp down rampant inflation in the U.S. economy. Mortgage rates don’t directly follow the direction of the federal funds rate; they tend to rise and fall in tandem with the yield on the 10-year Treasury note BX:TMUBMUSD10Y, which tends to anticipate what the Fed will do next.
But with inflation remaining higher than the Fed’s desired 2% target, it’s unclear how the Fed will proceed on interest-rate policy in the coming months.
Financial markets are also concerned about President-elect Donald Trump’s proposed tariffs, which could raise consumer prices. All that worry has pushed the 30-year mortgage rate up over 7% as of Nov. 13, according to a daily survey run by Mortgage News Daily .
Elon Musk’s role in the housing market
While the White House and politicians don’t control the Federal Reserve, Yun said that one way the government can address high mortgage rates is to rein in the federal deficit.
“Tariffs can be inflationary in the short term, and budget deficits can push mortgage rates up,” Yun said. “Given that tax increases appear unlikely under President Trump, meaningful cuts in government spending are required to control the deficit. Let’s see what Elon Musk can do in the newly created role.”
Trump on Tuesday appointed Musk and onetime Republican presidential candidate Vivek Ramaswamy to co-lead what is being called the “Department of Government Efficiency,” tasked with eliminating government bureaucracy. The two billionaires’ positions do not hinge on congressional approval. Their work is expected to conclude by July 4, 2026, the 250th anniversary of the signing of the Declaration of Independence.
“Musk will be in charge of government efficiency with the goal of thinning out unnecessary staff and programs,” Yun said. “We do not know where or when he will focus. The bulk of spending is currently off limits to any cuts, like Social Security.”
Analysts have expressed skepticism over what Musk and Ramaswamy actually can accomplish, emphasizing that Congress has power over the U.S. government’s budget and often ignores the White House’s proposals.
The new effort is comparable to the Simpson-Bowles commission on deficit reduction created during the Obama administration in 2010. That body’s recommendations were not passed into law even as they drove the conversation at that time, said TD Cowen Washington Research Group’s Chris Krueger in a note.
“The track record on generating attention and driving the conversation is quite good; the track record on implementation is quite poor. Time will tell,” Krueger wrote.
Beacon Policy Advisors senior policy analyst Andrew Lokay made a similar point.
“Despite Musk and Ramaswamy’s best efforts, history is not on their side when it comes to federal fiscal commissions,” he said. “Enthusiastic support from the Oval Office could make their task easier than previous commissions, but achieving significant cuts to federal spending could still be an uphill battle.”
On the campaign trail, Trump promised to bring down mortgage rates to a 2% level. Mortgage rates were last at 2% during the pandemic, when the Federal Reserve decreased its benchmark policy rate as the pandemic led to widespread closures and suppressed economic activity.
Yun said in a Nov. 8 speech at a NAR conference that mortgage rates during Trump’s first term were around 4%. “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%.”
How does the federal deficit affect mortgage rates?
Mortgage rates closely track the yield on the 10-year Treasury note, meaning they rise and fall in tandem with it. If the government borrows more money, it must pay higher interest rates to attract buyers of its debt. A bigger federal deficit would then lead to higher mortgage rates for buyers.
“Today, we have a massive budget deficit at a time when we are not in an economic recession,” said Yun. “Clearly President-elect Trump will not stop tax cuts — he will extend or expand them.”
“There will be less mortgage money available because the government is borrowing so much money,” he added. “However, if the Trump administration can lay out a credible plan to reduce the budget deficit, then mortgage rates can move downward.”
Victor Reklaitis contributed to this report
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