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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.

 

China to Cut Existing Mortgage Rates by End of October to Boost Property Market

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China’s central bank, the People’s Bank of China (PBOC), announced on Sunday that it would instruct commercial banks to lower mortgage rates on existing home loans by October 31. This move is part of broader policies aimed at supporting the country’s struggling property market amidst an economic slowdown.

The PBOC’s statement detailed that commercial banks should reduce existing mortgage rates in stages, with rates to be set at least 30 basis points below the Loan Prime Rate (LPR), China’s benchmark mortgage rate. On average, this adjustment is expected to lower rates by approximately 50 basis points.

Throughout 2023, China has introduced various policies, including lowering down-payment requirements and mortgage rates, in an attempt to revitalize its property sector. However, these measures have had limited success in boosting sales or improving liquidity in a market that remains cautious, contributing to a drag on broader economic growth.

Adding to these nationwide efforts, cities like Guangzhou announced the removal of all home purchase restrictions, while major urban centers such as Shanghai and Shenzhen revealed plans to relax housing rules for non-local buyers. In addition, the minimum down-payment ratio for first-time homebuyers in these cities will be reduced to 15%.

These policy adjustments come shortly after China launched its largest economic stimulus package since the COVID-19 pandemic, seeking to pull the economy out of a deflationary trend.

The need for urgent adjustments was highlighted earlier this month when new home prices fell at their fastest pace in over nine years, and property sales plunged by 18% during the first eight months of the year. By cutting mortgage rates, the central bank hopes to ease the financial burden on homeowners, stimulate the property market, and revive weak domestic consumption.

“As market-oriented reforms on interest rates deepen, and the relationship between supply and demand in the real estate market undergoes significant changes, the current mortgage rate pricing mechanism has exposed its shortcomings,” the PBOC said. “The public response has been strong, indicating that the mechanism requires urgent adjustments and optimization.”

China’s largest state-owned banks, including Industrial and Commercial Bank of China and China Construction Bank, have indicated their commitment to implementing these changes. The aim is to adjust mortgage interest rates in an orderly fashion, offering relief to homeowners.

While previous rate cuts primarily benefited new homebuyers, existing homeowners have continued to carry higher-rate loans. This has resulted in many households rushing to pay off their mortgages early, which in turn has constrained spending and consumption.

According to official data, the total value of individual mortgages in China stood at 37.79 billion yuan ($5.39 billion) as of June, marking a 2.1% decline year-on-year.

Additionally, the PBOC announced an extension of supportive measures for real estate developers, allowing access to loans and trust funds until the end of 2026 to help meet financing needs and stabilize the sector.

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Property stocks in Hong Kong surged on Tuesday following significant announcements by Chinese financial regulators regarding measures aimed at easing the financial strain on households and bolstering the real estate sector. The People’s Bank of China (PBOC) Governor Pan Gongsheng revealed key initiatives during a press conference, including a reduction in mortgage interest rates and a lower down-payment requirement for second homes.

The PBOC’s new policy will lower the interest rates on existing mortgages by 0.5 percentage points and reduce the down-payment ratio for second homes to 15% from the previous 25%. This marks the first time that down payment requirements for first and second homes have been aligned. The central bank expects this move to ease household mortgage payments by approximately 150 billion yuan ($21.25 billion) annually.

Following the announcement, the Hang Seng Mainland Properties Index rose as much as 5%, and real estate developers like China Resources Land, Longfor Group Holdings, and China Overseas Land & Investment experienced significant gains of 4.49%, 4.57%, and 5.41%, respectively.

China’s policymakers have been increasing efforts to support the property market, which has struggled with declining investments and falling demand. However, past measures have had limited impact, with property-related investments falling by more than 10% in the first eight months of this year compared to the previous year.

Alongside the mortgage relief measures, Pan Gongsheng also announced a 50 basis point cut to the reserve requirement ratio (RRR), allowing commercial banks more liquidity to support lending. This move is part of broader efforts to stabilize the property sector and reduce household financial burdens.

While the mortgage rate cuts may alleviate financial pressure on existing homeowners, analysts are cautious about the long-term impact on the housing market. William Wu, an analyst at Daiwa Capital Markets, noted that the cuts may not stimulate new demand for homes and could slow down further reductions in loan prime rates. Bruce Pang, chief economist at JLL, emphasized the need for additional measures to support developers and stimulate property investment and construction activities.

There are also discussions underway about allowing homeowners to renegotiate their mortgage terms with lenders before January next year, potentially offering further relief to struggling households. This could include the option for homeowners to refinance with different banks, a practice that has not been allowed for several years.