Trump has made it very clear his main objective with housing is lowering rates and increasing home prices. Mortgage rates have hovered in the mid 6 percent range, which is lower than the 7 percent peaks, but still high enough to strain affordability. As we head into 2026, everyone is wondering if Trump can actually get rates to go down.
The truth is Trump can’t wave a magic wand or propose a bill that gets rates down. Certain things have to happen within the markets and economy to make this a reality. Let’s break it down.
1. The Federal Reserve Cutting Rates
While the Federal Reserve doesn’t directly set mortgage rates, its control over the federal funds rate heavily influences bond markets, especially the 10-year Treasury, which mortgage rates closely track. If inflation continues cooling toward the Fed’s 2 percent target, policymakers could cut rates more aggressively in 2026.
Now that Trump has appointed Kevin Warsh as Federal Reserve Chair, markets are closely watching how monetary policy tone may shift. Warsh, a former Fed governor, has historically been viewed as more market-sensitive and skeptical of prolonged emergency-style monetary policy. His leadership could influence how quickly the Fed pivots if inflation continues moderating or if economic data weakens.
If inflation remains under control and economic growth cools modestly, a Warsh-led Fed in 2026 could support a steady, measured rate-cutting cycle. That would likely bring mortgage rates down gradually rather than in a dramatic drop.
What does that mean for home prices?
If rates move from 6.5 percent to 5.5 percent, purchasing power increases dramatically. A buyer approved for a $3,000 monthly payment could afford tens of thousands more in home price. More affordability equals more demand, and in supply-constrained markets, that could push prices higher again.
2. A Slowing Economy or Recession
Mortgage rates often fall during economic slowdowns. If unemployment rises and consumer spending weakens, investors shift capital into safer assets like U.S. Treasuries. Increased bond demand lowers yields—and mortgage rates follow.
We’ve already seen corporate layoffs in sectors like tech and retail, including companies such as Amazon. If job weakness spreads, which I anticipate, rates could fall faster.
Impact on prices?
- In a mild slowdown, lower rates could stabilize or lift prices.
- In a deeper recession with rising unemployment, demand may fall even if rates decline.
If buyers fear job loss, they don’t rush into the market — even with cheaper financing. In that case, price growth could stall or soften despite lower rates.
3. Political Pressure and Housing Policy
Trump has taken a creative approach to housing policy. He has been clear that his goal is to make it easier for Americans to enter the housing market without forcing home prices lower. Rather than focusing solely on lowering interest rates, the strategy centers on expanding financing flexibility and unlocking new pathways to ownership.
There has been serious discussion around housing-specific tools such as:
- Expanded assumable mortgages
- 40- or even 50-year loan terms
- Allowing penalty-free use of 401(k) funds for down payments
These policies do not directly reduce mortgage rates. Instead, they increase affordability by lowering monthly payments, reducing upfront cash barriers, or expanding buyer qualification power.
In many ways, this approach mirrors elements of Canada’s housing finance system. In Canada, longer amortization periods and flexible qualification structures are already common tools used to keep buyers active in the market despite higher price levels. By extending loan terms, payments become more manageable, even if the overall home price remains elevated.
The economic logic is straightforward: when affordability improves, demand increases.
So what happens to prices if more buyers suddenly qualify?
History provides a consistent pattern. When purchasing power rises quickly—whether from falling rates, extended loan terms, or looser lending standards—home prices often respond upward. More buyers enter the market. Competition intensifies. Inventory tightens. Sellers gain leverage.
My Predictions for Rates in 2026
The most realistic outcome heading into 2026 is a move into the mid-5 percent range. If inflation continues moderating and the Federal Reserve implements steady, measured rate cuts under its current leadership, mortgage rates easing into the mid-5s would reflect a cooling—but not collapsing—economy. That scenario strikes the balance between stability and relief, and in my view, it’s the most probable path forward.
Housing prices in 2026 will depend more on buyer demand than on rates alone. Demand is driven by job stability, which is not only unemployment, but also how secure people feel in their income. If rates fall into the mid-5 percent range and employment remains strong, demand could accelerate and support prices. If rates drop due to a recession and job insecurity rises, buyer confidence may weaken. It is more difficult to predict this part of the equation. That is why the key element I am watching into 2026 is the unemployment numbers.
