Homebuyers expecting a sharp decline in mortgage interest rates in the near term may face disappointment, even with a change in leadership at the United States Federal Reserve. Recently nominated by President Donald Trump, Kevin Warsh is slated to assume the position of Fed chair following the expiration of Jerome Powell's term in May, pending confirmation. Trump has publicly expressed his desire for reduced interest rates, and Warsh's recent commentary implies potential support for rate cuts. However, Powell has indicated a pause in policy shifts as the central bank persists in its efforts against inflation.
Mortgage interest rates, despite retreating by nearly a full percentage point from early 2025 peaks, continue to hover above 6 percent. This sustained level exacerbates the existing challenge of housing affordability, placing increased financial strain on prospective buyers navigating already elevated home prices. President Trump has identified enhancing housing affordability as a cornerstone of his economic agenda leading into the 2026 midterm elections.
Nonetheless, economists emphasize that even if the Federal Reserve enacts rate reductions, the actual effect on mortgage borrowing rates may be limited. Mortgage interest rates are predominantly influenced by the trajectory of the 10-year US Treasury yield, which fluctuates based on a multitude of economic indicators and circumstances. Beyond interest rate policy, the dynamics shaping home prices involve housing inventory levels, demand pressures, and regulatory environments at state and local levels.
“The mortgage market is very complex,” explained Charlie Dougherty, senior economist at Wells Fargo. “Yes, the Fed plays a role, but the root causes of mortgage rates being elevated are inflation, prospects for growth, and fiscal pressures.” This complexity is further demonstrated by instances where mortgage rates have diverged from Fed policy movements; for example, in September 2024, the 30-year fixed mortgage rate increased even after the Federal Reserve reduced interest rates.
In pursuit of directly influencing mortgage rates, President Trump introduced a policy directive in December 2025, instructing government-backed mortgage entities, Fannie Mae and Freddie Mac, to acquire $200 billion in mortgage bonds. Federal Housing Finance Agency (FHFA) spokesman Jonathan Coppage confirmed to CNN that such purchases have already commenced and have been positively received by market participants. The FHFA oversees the operational aspects of these entities.
Despite this intervention, several economists caution that the strategy is unlikely to substantially counteract long-standing market forces over an extended timeframe. Wells Fargo anticipates that the 10-year Treasury yield will experience a mild decline during the initial months of this year but project an upward trend resuming in 2027, potentially exerting upward pressure on mortgage rates. Consequently, neither the mortgage bond acquisitions nor Warsh’s potential leadership are expected to significantly change long-term mortgage market conditions.
Daryl Fairweather, chief economist at Redfin, highlighted that ongoing government shutdowns may impede the Federal Reserve’s ability to promptly adjust monetary policy since requisite economic data might be delayed. Fairweather also identified insufficient housing supply, particularly in urban centers and job-rich areas, as a primary factor limiting housing affordability.
In January 2026, Trump enacted an executive order banning large institutional investors from acquiring single-family homes, a move aimed at curbing speculative buying. However, a comprehensive plan to expand the housing supply has yet to be disclosed. The administration has simultaneously expressed concerns about precipitous home price declines, citing potential adverse effects on existing homeowners’ wealth. “People that own their homes, we’re going to keep them wealthy. We’re going to keep those prices up,†President Trump said during a Cabinet meeting, stressing the intent to maintain property values while enhancing affordability through reduced interest rates.
Despite rate levels exceeding 6% and home prices near historical highs, recent data indicates signs of stabilization within the housing market. Mortgage applications increased throughout January, suggesting that more buyers are re-entering the market, according to the Mortgage Bankers Association. Additionally, sellers seem to be adjusting expectations, accepting the prevailing mortgage rate norms. Brad Case, chief residential economist at Homes.com, noted that many homeowners with previously low mortgage rates are now more willing to list their properties.
Affordability improvements observed in certain markets appear driven more by moderated home price growth and income increases rather than rate reductions or expanded housing supply. “Income growth has increased. That’s sort of the one thing that’s going to pull us out of this affordability problem without seeing house prices go down,” Case remarked, highlighting a gradual market normalization process.