Introduction
The U.S. housing market is at a crossroads. Prices have reached all-time highs, mortgage rates hover around 6.7%, and buyers are increasingly shut out of the market. President Donald Trump claims that cutting interest rates will make buying a home more affordable. But experts warn that the story is not so simple. Rate cuts can lower borrowing costs in theory, but they can also fuel demand, raise prices, and create unintended ripple effects across the economy.
This article explores Trump’s push for lower rates, the Federal Reserve’s cautious stance, and what this tug-of-war means for housing affordability in 2025 and beyond.
Trump vs. The Fed: A Familiar Battle
President Trump has once again turned his attention to Federal Reserve Chair Jerome Powell. He blames Powell’s reluctance to cut rates more aggressively for keeping the dream of homeownership out of reach for many Americans. “People aren’t able to buy a house because this guy is a numbskull,” Trump said recently in the Oval Office, accusing Powell of keeping rates high for political reasons (Source: NPR).
But the Fed’s role is not that simple. While it does set interest rates, which influence mortgage rates, the central bank’s primary goal is to balance inflation and employment. Cutting rates too quickly could undermine inflation control, which in turn could keep mortgage rates higher than expected.
Source: Bloomberg, Federal Reserve
The Argument for Cheaper Mortgages
Trump’s case resonates with basic math. Lower interest rates usually mean cheaper mortgages. For example, borrowing $320,000 at a 6.75% mortgage rate costs around $2,076 per month. At 6%, the payment drops to $1,919 — saving a homeowner about $157 monthly, or $1,884 annually (Source: Bankrate).
Such savings could draw more buyers into the market. Lower borrowing costs would make homeownership seem more attainable, especially for first-time buyers currently priced out.
Why It May Not Work
However, experts like Robert Reich, former Labor Secretary and UC Berkeley professor, warn that Trump’s solution oversimplifies a complex problem. If the Fed cuts rates while inflation expectations remain high, markets may respond with skepticism. Mortgage rates, tied to Treasury yields, could remain elevated or even rise as investors demand higher returns to offset inflation risk (Source: NPR).
In other words, lower Fed rates don’t automatically mean lower mortgage rates.
The Demand Surge Problem
Even if mortgage rates did fall, there’s another risk: a surge in housing demand. Reich notes that cutting rates would likely bring sidelined buyers back into the market. Without a corresponding increase in housing supply, this demand shock could push home prices even higher.
Source: S&P CoreLogic Case-Shiller Index
That means lower rates could paradoxically make homes less affordable in the long run.
Tariffs and the Supply Crunch
Trump’s trade policies add another wrinkle. His tariffs on Canadian lumber, steel, aluminum, and even home appliances have raised construction costs. The National Association of Home Builders says tariffs are directly contributing to higher prices for new housing (Source: NAHB).
At a time when new housing starts are already declining, higher material costs discourage builders from breaking ground. The Census Bureau reports fewer permits, fewer starts, and fewer completions compared to last year. With supply so constrained, any increase in demand risks worsening the affordability crisis.
Source: U.S. Census Bureau
The Fed’s Balancing Act
The Federal Reserve is navigating a tricky path. Powell has signaled that while rate cuts are possible, they may not bring rates back to pre-pandemic lows near 3%. “Their neutral level may now be higher than during the 2010s,” Powell said at the Jackson Hole symposium (Source: Financial Times).
This suggests that even with cuts, mortgage rates may settle closer to 6% rather than the ultra-low levels seen in 2020–2021. For buyers, that means affordability will improve only gradually.
Lessons from History
History shows that Americans continue to buy homes even in high-rate environments. In the 1980s, mortgage rates reached 18%, yet demand persisted. In the 1990s, 8–9% was the norm, and sales continued. More recently, in the housing bubble of the mid-2000s, rates were high but prices soared anyway (Source: WSJ).
What this suggests is that life events — jobs, marriages, family changes — drive housing demand just as much as rates. While interest rates shape affordability, they are not the only factor.
Market Outlook for 2025
The National Association of Realtors reports that the median resale home price in June 2025 hit $435,300, a record high (Source: NAR). Despite high rates, prices continue climbing, reflecting tight supply and persistent demand.
Experts expect only modest relief. Mortgage rates could drift slightly lower, perhaps toward 6.5% by year-end. But unless supply expands meaningfully, affordability will remain constrained.
Source: NAR, Statista
Policy Alternatives
If cutting rates isn’t a silver bullet, what else can be done?
- Reduce tariffs: Lowering costs for building materials could stimulate construction and expand supply.
- Ease zoning restrictions: Streamlining approvals for new housing can accelerate development.
- Incentivize builders: Tax credits or subsidies for affordable housing construction could help close the supply gap.
- Expand rental support: Policies that support renters could ease pressure on the buying market.
These measures require coordination across federal, state, and local governments — a heavy political lift, but one that may be necessary to address affordability.
Conclusion
Trump’s push for lower interest rates reflects real frustrations among Americans struggling to buy homes. But lower rates alone won’t solve the housing crisis. Without addressing supply constraints, tariffs, and zoning barriers, cheaper mortgages could actually fuel higher prices.
For now, the U.S. housing market remains stuck between strong demand and limited supply. Rate cuts may provide temporary relief, but meaningful progress will require broader reforms.
This article is for informational purposes only and does not constitute financial advice. Readers are encouraged to do thorough research before making any investment decisions.
