Elon Musk's potential impact on future U.S. mortgage rates

Home sales have reached their lowest point in decades due to high home prices and mortgage rates hovering around 7%. The National Association of Realtors (NAR) reports that the proportion of first-time homebuyers has dropped to its lowest level in 43 years. Amid these challenges, some prospective buyers are hoping for lower mortgage rates.

According to Lawrence Yun, NAR's chief economist, Elon Musk could play a crucial role in this scenario. Yun suggests that with inflation normalizing, the Federal Reserve might reduce its restrictive monetary policy, potentially leading to cuts in short-term interest rates and putting downward pressure on mortgage rates. "The overall inflation rate is normalizing, and the Federal Reserve can move away from its current restrictive monetary policy," Yun said.

Yun highlighted that despite an increase in the Consumer Price Index by 2.6% year-over-year in October, there is still a trend towards stabilizing prices. This stabilization follows a peak in June 2022 when consumer prices surged nearly 9% annually. Mortgage rates generally follow the yield on the 10-year Treasury note rather than directly tracking the federal funds rate.

The financial markets are also apprehensive about President-elect Donald Trump's proposed tariffs, which could drive consumer prices up further. As of November 13th, Mortgage News Daily reported a rise in the 30-year mortgage rate above 7%.

Elon Musk's involvement comes as he was appointed alongside Vivek Ramaswamy by Trump to co-lead a new "Department of Government Efficiency." Their mission is to streamline government operations without needing congressional approval, with their work set to conclude by July 4, 2026. Yun noted, "Musk will be in charge of government efficiency with the goal of thinning out unnecessary staff and programs."

However, analysts like Chris Krueger from TD Cowen Washington Research Group express skepticism about what Musk and Ramaswamy can achieve given Congress's control over the budget. Beacon Policy Advisors' Andrew Lokay echoed this sentiment but acknowledged that strong support from the Oval Office might ease their task.

On his campaign trail, Trump vowed to reduce mortgage rates to 2%, reminiscent of levels during pandemic-induced economic conditions when the Federal Reserve lowered its benchmark rate significantly. However, Yun anticipates that rates will likely stabilize between 5.5% and 6.5%.

Yun explained how federal deficits influence mortgage rates: they closely track the yield on the 10-year Treasury note; hence increased government borrowing can lead to higher interest payments and subsequently higher mortgage rates for consumers.

Victor Reklaitis contributed additional reporting for this article.