A Non-Party Affiliated review of Trump’s Return: A Market and Economic Overview for the Mortgage and Real Estate Industry
As the dust settles, and as your internal monologue has you celebrating, or grieving, this week marks a significant change for our country: Donald Trump will be President once again, winning both the popular vote and the electoral college.
Setting aside the emotions that come with victory and loss, I aim to take a neutral tone to help our clients, readers, followers, and the mortgage and real estate community understand how the markets have initially reacted to Trump’s victory. We’ll also explore what it looks like to have a Republican-led Senate, a Republican-led House of Representatives, and an already conservative-leaning Supreme Court.
A single party having control of the Presidency, Senate, and House is more common than you might think. This alignment happened during Obama’s first two years in office, Trump’s first two years, and Biden’s first two years. With Trump back in office, it’s no surprise that this alignment may occur again.
How Did the Markets React?
• The morning after the election, the Dow Jones Industrial Average opened 3% higher, and the S&P 500 rose over 2%.
• Cryptocurrency and crypto-related stocks jumped, opening 20% higher.
• Treasury bond rates increased.
• Mortgage rates went up.
Analysis:
In general, the stock market seems to celebrate a Republican presidency, likely due to the perception that Trump will be more “pro-business” than the previous administration or what a Harris administration might have been. Again, this article isn’t intended to lean red or blue—just to acknowledge what’s happening in the markets.
Trump is also a notable supporter (along with Elon Musk) of the crypto world, and there’s a perception that he may foster an environment friendly to the creation and growth of this asset class by appointing supportive regulators.
A curious movement occurred in the treasury market, where higher rates on the 10-year treasury bond and others do not signal that markets believe Trump will continue to fight inflation. I’m part of the Wells Fargo Economic Forecasting community, whose internal forecasters offered insight into why treasury bonds opened higher today (and for the record, this group tends to lean red). Here’s what they said:
“Trade Policy: President-elect Trump has proposed a 10% across-the-board tariff on America's trading partners, with a 60% tariff levied on China. If implemented shortly after Inauguration Day on January 20, these tariffs could impart a modest stagflationary shock to the U.S. economy in 2025. Our model simulations show that the core CPI inflation rate next year would shoot up from its baseline value of 2.7% to 4.0%. Under this scenario, U.S. real GDP would rise by a sluggish 0.6% in 2025.”
As a reminder, “stagflation” refers to low or stagnant economic growth with persistent inflation. The Wells Fargo team also shared thoughts on the Federal Reserve’s direction:
“Federal Reserve: Our current forecast looks for the FOMC to cut its target range for the federal funds rate, currently 4.75%-5.00%, to 3.00%-3.25% by the end of next year. However, the FOMC may not want to ease policy by that much if new tax cuts and tariffs cause inflation to shoot higher over the next couple of years. Thus, we think the risks to our fed funds rate forecast are skewed to the upside (i.e., less easing next year than we currently project).”
Source: Wells Fargo
What Does a Trump Presidency Mean for the Housing Market?
Let’s start with mortgage rates. The day after the election, most lenders raised their rates by about 0.125% based on treasury and mortgage-backed securities market activity. It’s clear that the market believes Trump’s economic policy may not curb inflation. There’s also a belief that the Federal Reserve might not lower the federal funds rate as quickly as it might have under a Harris presidency.
Since the Fed isn’t expected to lower rates as aggressively as hinted in previous FOMC meetings, we might see rates rise in the short term before they recede toward the end of 2025 as the impact of Trump’s policy takes shape and becomes known.
Trump has also pledged to build 3 million new homes during his presidency. If he follows through, we might see tax breaks and assistance for homebuilders in the U.S. (think DR Horton, Lennar, KB Homes, Pulte, etc.). However, the “Catch-22” is that if interest rates don’t recede, affordability will remain an issue. Builders could flood the market with homes, but if people can’t afford them, the housing market may stagnate. On the day after the election, shares of these homebuilders opened 5%-8% lower than their pre-election close.
One final thought.
Economic forecasting and market analysis aside. Today reminds me of two significant quotes that I try to carry with me. One is from the late Steve Pringle, a former Portland, Oregon on-air radio DJ whose life was cut way too short by Cancer. He finished every on-air shift simply by saying “Be Good Humans”. For a time being, Dan Rather used to finish his News Broadcasts by saying one simple word, "Courage”. Today especially, let’s have the “Courage” to “Be Good Humans”.
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