On The Market What Does Trump’s Economy Mean for the Housing Market?
Nov 25, 2024
Matthew Walsh, an economist at Moody’s Analytics specializing in housing market analysis, dives into how economic sentiment influenced the 2024 election results. He discusses the disconnect between strong economic indicators and consumer anxiety, particularly around inflation. Walsh examines the challenges of housing affordability amid high mortgage rates and the impact of tariffs on home prices. Despite inflation cooling, he highlights the significant drops in mortgage rates needed to reach pre-2019 affordability levels and explores potential pathways for the housing market's future.
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Consumer Sentiment vs. Economic Data
- Despite strong economic indicators like GDP growth, low unemployment, and decreasing inflation, consumers report feeling anxious about the economy.
- This disconnect may stem from consumers' anchoring bias, comparing current prices to pre-pandemic levels and feeling a loss of purchasing power.
Inflationary Pain
- The negative reaction to inflation is exacerbated by the period of historically low inflation between the Great Financial Crisis and COVID-19.
- People became accustomed to stable prices and now experience a painful swing to higher inflation.
Inflation's Impact on Housing
- Higher inflation will directly impact the housing market through mortgage rates, which are tied to 10-year treasury yields.
- A higher baseline inflation pushes up long-term yields, leading to higher mortgage rates.