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Mortgage Rates Surge Following Trump Victory, Causing Housing Stocks to Drop

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President-elect Donald Trump’s victory has led to a noticeable increase in U.S. 10-year Treasury yields, which has subsequently impacted mortgage rates. On Wednesday, the average rate for a 30-year fixed mortgage climbed by 9 basis points to 7.13%, according to Mortgage News Daily. This rate marks the highest since July of this year, though the increase was somewhat lower than some market analysts anticipated.

Matthew Graham, COO of Mortgage News Daily, noted that bond traders had expected rates to climb if Trump won, especially in the case of a Republican majority in Congress. While this majority is still uncertain, Trump’s victory alone has already pushed rates higher.

This spike in mortgage rates has adversely affected housing stocks. Major homebuilders such as Lennar, D.R. Horton, and PulteGroup saw their stocks fall by about 5% in midday trading. Retailers associated with home improvement, including Home Depot and Lowe’s, also experienced a decline of around 3% each. John Burns, CEO of John Burns Real Estate Consulting, emphasized that builder stocks are particularly sensitive to mortgage rates, which influence housing demand and construction costs.

Although Trump has not provided specific plans regarding housing policy, he has previously mentioned deregulation and the potential opening of federal land to increase housing supply. In a statement, Carl Harris, chairman of the National Association of Home Builders (NAHB), expressed optimism about Trump’s administration, indicating that the NAHB anticipates working with Trump to advance housing legislation aimed at easing affordability challenges and boosting supply.

Builders have been absorbing some of the mortgage rate increases by offering rate buy-downs to customers, though this approach has reduced profit margins. Despite the Federal Reserve’s recent rate cut, mortgage rates have continued to climb due to strong economic reports in September and October, which drove up bond yields.

For homebuyers, this rate increase translates to a substantial difference in monthly payments. A borrower purchasing a $400,000 home with a 20% down payment on a 30-year fixed mortgage would have had a monthly payment of $1,941 in early September; now, that payment is $2,157, reflecting an increase of $216 per month.

The current housing market has seen an unusual boost in existing home sales, with pending sales (signed contracts) rising by 7% in September compared to August. This sales surge is largely driven by increased inventory, as the number of homes for sale in October was up 29.2% compared to the previous year, reaching the highest levels of active inventory since December 2019.

According to Graham, the future trajectory of mortgage rates will depend on inflation, broader economic performance, and Treasury issuance, factors which will continue to play a critical role in the U.S. housing market.

 

Treasury Department Sets New Series I Bond Rate at 3.11% for Next Six Months

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The U.S. Department of the Treasury has introduced a new annual interest rate of 3.11% for Series I bonds, effective November 1, 2024, through April 30, 2025. This rate marks a decrease from the previous 4.28% yield in place since May and significantly down from the 5.27% rate set a year earlier in November 2023.

The new composite rate of 3.11% consists of a 1.90% variable portion and a fixed portion of 1.20%, slightly reduced from May’s fixed rate of 1.30%. Although the I bond yield has fallen considerably since its peak of 9.62% in May 2022, the fixed-rate component remains attractive for long-term investors, according to financial experts.

Understanding I Bond Rate Structure

Series I bonds offer a composite rate that combines a variable rate, which adjusts based on inflation, and a fixed rate, which remains constant for the bond’s life. The Treasury Department revises both parts biannually, every May and November. Current I bond holders experience the new rates after a six-month adjustment period based on their initial purchase date. For instance, I bonds purchased in September 2024 would start at a 2.96% variable rate, adjusting to the new 1.90% rate in March 2025, while the fixed rate of 1.30% would stay constant, making the composite rate 3.2%.

This structure provides investors with some inflation protection while offering a predictable fixed return for long-term holdings, despite recent reductions in the composite yield.

 

UK Borrowing Costs Surge After Labour’s Tax-Heavy Budget Announcement

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UK borrowing costs rose sharply a day after the Labour government introduced a tax-increasing budget. By 2:33 p.m. on Thursday in London, the 1-year gilt yield had jumped by 20 basis points to over 4.5%, with the 10-year yield up by 15 basis points, also reaching 4.5%. These shifts came on the heels of Finance Minister Rachel Reeves’ announcement of a budget plan incorporating £40 billion ($52 billion) in tax hikes and significantly higher borrowing over the next few years.

Analysts at ING expressed concerns over the projected increase in government borrowing, which is forecasted by the Office for Budget Responsibility to average £36 billion more per year over the next five years as tax revenue gradually adjusts. Despite the recent volatility, this budget reaction is seen as more stable than the “mini-budget crisis” of September 2022, which saw then-Prime Minister Liz Truss’s administration announce substantial unfunded tax cuts. That move led to severe bond market instability, placing UK pension funds at risk and ultimately forcing an emergency intervention by the Bank of England. Truss’s policies were largely reversed, leading to her resignation shortly afterward.

Reeves’ budget has led some analysts to predict modest inflationary pressure, which may result in a slower rate-cutting pace by the Bank of England. Analysts at Goldman Sachs noted the likelihood of a “reduced urgency for sequential rate cuts in the near term,” while Morgan Stanley’s Andrew Sheets highlighted the potential for slight inflation growth alongside short-term economic improvements.

Despite fears of inflation, ING analysts suggested the Bank of England is unlikely to alter its policy approach based on the budget, with services inflation expected to continue declining. Meanwhile, the British pound was down 0.4% against the U.S. dollar and 0.46% against the euro, while the FTSE 100 index dropped 1.04%, aligning with broader declines in European equities.

Deutsche Bank’s Jim Reid remarked that the UK market’s reaction could be attributed to robust European data that has pushed yields higher on the continent, along with U.S. market pressures amid reports of increased poll support for Donald Trump. Reid emphasized that the new budget reflects a different approach than the Truss-era tax cuts, with increased borrowing intended for investment rather than immediate fiscal relief.