The recent election of Donald Trump as President of the United States has sent ripples across various sectors, notably the financial markets and housing industry. His victory, much anticipated by bond traders, had an immediate effect on the U.S. 10-year Treasury yield, subsequently influencing mortgage rates across the nation. As a result, a comprehensive understanding of the unfolding scenario is essential for stakeholders, from potential homeowners to investors and builders.
In the aftermath of Trump’s election, mortgage rates have seen a notable upswing. As reported by Mortgage News Daily, the average rate on a 30-year fixed mortgage reached 7.13%, marking a significant increase of 9 basis points in just one day. While this surge was not as dramatic as some had predicted, it underscored the sentiment that political outcomes can heavily impact financial variables such as interest rates. This correlation raises questions about the stability of the mortgage market in light of political decisions, revealing the intricate bond between governance and economy.
Matthew Graham, the COO of Mortgage News Daily, emphasized that market expectations had pre-conditioned traders to anticipate such movement in the case of a Trump victory. The dominant narrative surrounding that election cycle suggested a red wave would inflate rates significantly, which indeed transpired, though with varying intensity across different market segments.
The immediate consequence of rising mortgage rates was reflected in the stock prices of key players in the housing market. Notably, prominent builders such as Lennar, D.R. Horton, and PulteGroup experienced declines of about 5% in midday trading following the election. Retail giants like Home Depot and Lowe’s were similarly affected, showing drops of near 3%. This downward trend hints at a broader concern regarding the sensitivity of builder stocks to mortgage rate fluctuations, as rising rates typically dampen buyer enthusiasm leading to a slowdown in housing sales.
John Burns, CEO of John Burns Real Estate Consulting, pointed out the correlation between inflation expectations, mortgage rates, and, consequently, housing market health. An overarching theme for investors and builders is how long-term fiscal policies can substantively shift the dynamics of market functioning, especially in the context of Trump’s proposed deregulation and potential land use for housing.
While concrete details surrounding Trump’s housing agenda remain sparse, he has hinted at intentions favoring deregulation and facilitating home construction through federal land use policies. This stance has elicited optimism from industry insiders, including Carl Harris, chairman of the National Association of Home Builders, who expressed hope that the new administration would collaborate on favorable housing policies. Such dialogues may hold implications for legislative and regulatory frameworks, potentially easing affordability challenges in the housing market.
Builders, despite rising interest rates, have been actively buying down mortgage rates to make homes more accessible to buyers, albeit at the expense of their profit margins. This practice underscores a delicate balancing act wherein builders must navigate the rising costs of borrowing while striving to keep housing attractive for consumers.
Interestingly, despite the rising mortgage rates, October showed a surge in existing home sales, characterized by a 7% increase in pending sales compared to August. This trend was attributed largely to an increase in housing supply, with inventories rising by over 29% year-on-year, suggesting a shift towards a more favorable market for buyers.
With consumers now facing a stark increase in monthly payments—illustratively, a buyer seeking a $400,000 home with a typical down payment has seen their monthly mortgage jump from $1,941 to $2,157 post-election—affordability will remain a pressing issue. Matthew Graham encapsulated the uncertainty ahead, pointing out that future developments will hinge primarily on inflation trends, economic performance, and government borrowing patterns.
The economic landscape post-Trump’s election presents a complex tapestry of challenges and opportunities, particularly in the housing sector. The responses from both the financial markets and housing industry highlight a significant interplay between politics and economic realities, warranting close observation and informed responses from all stakeholders involved.