The victory of newly-elected President Donald Trump caused a rise in US 10-year government bond yields. Mortgage interest rates, which loosely follow the benchmark yield, are also rising.
The average 30-year mortgage rate rose 9 basis points to 7.13% on Wednesday, according to Mortgage News Daily. That's the highest figure since July 1 this year, although not quite the increase some had expected.
“The expectation among bond traders participating in the election was that yields would rise in the event of a Trump victory and especially a red sweep. Although the latter is not yet clear, the former is enough for a new increase in interest rates that have already risen. abruptly with Trump's chances of winning,” said Matthew Graham, chief operating officer at Mortgage News Daily.
Housing stocks responded in turn, with both large government builders and building materials companies falling sharply. Lennar, DR Horton And Pulte Group were all down more than 4% in afternoon trading Wednesday. Retailers Home Depot And Lowe's also fell, each by more than 3%.
“Construction stocks are very sensitive to mortgage rates and mortgage rate expectations. Inflation expectations are higher now, which is impacting long-term interest rates,” said John Burns, CEO of John Burns Real Estate Consulting.
While Trump did not lay out a detailed housing plan, he did talk about deregulation and opening up federal land for more housing development.
The National Association of Home Builders congratulated the president-elect with a statement from its president, Carl Harris, saying, “NAHB looks forward to working with the incoming Trump administration and congressional leaders from both parties to build a to issue legislative and regulatory proposals for housing. agenda that increases the nation's housing supply and alleviates the nation's affordability challenges.”
Major builders have lowered mortgage rates for their customers, but that has hit their margins.
Mortgage rates hit a recent low of 6.11% on September 11, but have been rising steadily since then, despite the Federal Reserve's recent rate cut. Mortgage rates do not follow the Fed, but do respond to the central bank's thinking about the economy. Stronger than expected economic reports in September and October caused bond yields, and thus mortgage rates, to rise.
To put it in perspective for consumers, a homebuyer 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. Today that payment would be $2,157, a difference of $216.
Sales of existing homes have experienced an unusual increase this fall. According to the National Association of Realtors, pending sales, which represent signed contracts, increased 7% in September compared to August. That was before interest rates went up significantly.
The increase in turnover is largely due to more supply. According to Realtor.com, there were 29.2% more homes actively for sale in October compared to October 2023, reaching the highest level of active inventory since December 2019.
“The path ahead is anyone's guess and will ultimately be determined by inflation, the economy and government bond issuance,” Graham added.
