👋👋 Good morning real estate watchers! Today, we are going to talk about...

1. They’re opening up federal lands for new housing developments—probably because the average American can no longer afford any land that isn’t crawling with coyotes. Great news if you’ve ever dreamed of a mountain cabin next to a missile testing site!

2. Office buildings once labeled ‘AAA’ are now playing a high-stakes game of Jenga with your investment portfolio. Spoiler: it’s not looking stable.

3. Guess who’s joining the millionaire's club? Boise and Salt Lake City! That’s right, cities once known for potato fields and ski slopes are now prepping for a future where your house costs as much as a small island.

Let’s go!

TOP STORY

TRUMP SEQUEL

As Donald Trump returns to the White House, the housing market braces for impact. With mortgage rates climbing and affordability concerns at an all-time high, his real estate background offers some comfort—but his proposed policies add a layer of uncertainty. From interest rates to supply shortages, Trump’s next four years could mark a pivotal and potentially rocky chapter for housing.

Mortgage Rates: The Trump Effect

Following Trump’s victory, mortgage rates shot up to 7.13%, their highest since July, driven by a sharp rise in the 10-year Treasury yield.

As Redfin’s lead economist Chen Zhao explains, mortgage rates are “expected to stay higher for longer,” with the administration’s proposed spending likely to increase inflationary pressures.

Matthew Graham, COO at Mortgage News Daily, noted, “Rates would move higher in the event of a Trump victory,” particularly if the Republican party holds majorities in Congress. The impact on affordability is evident: a buyer who could have locked in a rate of 6.11% in September on a $400,000 home is now looking at monthly payments over $200 higher.

Supply Side Promises: Deregulation and Federal Lands

One of Trump’s key housing proposals is slashing regulations and opening federal lands for development. Realtor.com’s Chief Economist Danielle Hale explained that regulations can add “more than $90,000 to the price of a new home.” The National Association of Home Builders (NAHB) voiced support, saying it looks forward to a “pro-housing legislative and regulatory agenda that increases the nation’s housing supply and eases the nation’s affordability woes.”

Trump’s plan to free up federal land for housing development has potential, but it’s not without hurdles. Hale noted, “The ultimate impact will depend on the extent and location of the land that is ultimately made available.” While land access may increase supply, skilled labor could be another bottleneck. Nearly one-third of residential construction laborers are foreign-born, and Trump’s immigration policies could reduce the labor supply just as new projects ramp up, driving up costs.

Housing Affordability: High Hopes, Grim Reality?

Affordability is at the top of many voters' minds: Redfin data shows that 38% of early voters identified housing as a key issue. However, Trump’s proposed interest rate cuts may fail to deliver the relief many hope for. “Lower interest rates typically bring higher prices, and it will be a ‘balancing act’ to see if the Trump administration can successfully implement them,” warned Alex Beene, a financial literacy instructor.

The fundamental supply-demand imbalance persists despite new policy initiatives. “The builder stocks are highly sensitive to mortgage rates and mortgage rate expectations,” noted John Burns, CEO of John Burns Real Estate Consulting. His observation comes as shares of major homebuilders like Lennar and D.R. Horton dipped sharply post-election.

The Market Reacts: Builders, Stocks, and Sentiment

The stock market’s reaction was swift. Shares of Lennar, D.R. Horton, and other major builders fell as investors eyed rate hikes on the horizon, signaling broader market skepticism. “The path ahead is anyone’s guess and will ultimately be determined by inflation, the economy, and Treasury issuance,” said Graham, summing up the wait-and-see stance the industry appears to be taking.

The Community Home Lenders of America (CHLA), representing small and mid-sized mortgage banks, also expressed cautious optimism. In a statement, CHLA said it “looks forward to working with President Trump…on the critical goal of creating accessible and affordable housing for borrowers,” particularly first-time and low-to-moderate-income buyers.

A Market in Flux: The Path Forward

In the end, Trump’s policies are likely to provide mixed results. Lower interest rates and deregulation could bring a wave of new development, but higher inflation and labor shortages may cut into those gains. Zhao from Redfin aptly noted, “There’s no quick fix to our supply and affordability issues. We’re all in wait-and-see mode.”

As mortgage rates remain volatile, supply struggles to keep pace with demand, and policy adjustments take time to trickle down, the housing market will be navigating uncharted waters. For better or worse, Trump’s return to the White House marks a new chapter for American housing—one with a lot at stake and no shortage of uncertainty.

SNIPPETS

1️⃣ Skyscrapers of Debt: The commercial mortgage-backed securities (CMBS) market, particularly single-asset, single-borrower (SASB) bonds, is facing significant challenges in the wake of the pandemic. Once considered ultra-safe investments with AAA ratings, many SASB bonds tied to office properties are now defaulting or at risk of default. Notable examples include 1407 Broadway in Manhattan, River North Point in Chicago, and Gas Company Tower in Los Angeles. The crisis has exposed the inherent risks of SASB bonds, which rely on a single property for income. It has led to substantial losses for investors, including those holding AAA-rated tranches. (Bloomberg)

2️⃣ Million-Dollar Metamorphosis: A recent analysis by Realtor.com reveals that several affordable housing markets in the United States are projected to reach million-dollar status within the next decade. The study, which examined price growth in the 100 largest metros between 2014 and 2019, predicts significant increases in home values by 2033. Cities like Boise City, ID, Salt Lake City, UT, and Portland, OR, top the list of potential million-dollar markets. These emerging high-value areas are predominantly located in the West and Midwest, often in close proximity to already expensive metropolitan regions. (Realtor.com)

3️⃣ Builders Hammered: Homebuilder stocks have taken a significant hit, with DR Horton experiencing a 12.7% drop and Toll Brothers down over 5%. The decline is attributed to weaker-than-expected home orders, as reported in DR Horton's earnings release. Despite recent decreases in mortgage rates, potential buyers are hesitant, anticipating even lower rates in 2025. The volatility in the US Treasury market and the return of 30-year fixed mortgage rates to above 7% have further complicated the housing market. This downturn occurs against a backdrop of economic uncertainty, including the "Trump Trade" and shifting expectations regarding Federal Reserve rate cuts. (Bloomberg)

4️⃣ Nursing Home Nightmare: PACS Group Inc., a major nursing home operator, saw its stock plummet 28% on Monday following allegations by Hindenburg Research of systematic taxpayer fraud. The short report triggered volatility halts and marked PACS' worst trading day since its April IPO. With over 280 facilities across 16 states serving more than 27,000 patients daily, PACS had previously been riding high on positive earnings reports and increased guidance. The company, which did not respond to requests for comment, is set to release its third-quarter results on Thursday amidst the growing controversy. (Bloomberg)

5️⃣ Banks' Lending Limbo: As 2024 draws to a close, the commercial real estate (CRE) debt market faces uncertainty regarding bank lending activity in 2025 despite downward-trending interest rates. Banks, holding 50.8% of the nearly $6 trillion in CRE mortgage debt, have been largely inactive since early 2022 due to Federal Reserve interest rate hikes. While some experts anticipate a gradual return to normalcy in balance sheet lending, others suggest alternative lenders may dominate the market until interest rates decrease significantly. The situation is further complicated by regional banks' cautious approach following recent bank collapses and their potential shift towards commercial and industrial lending as an alternative to CRE. (CO)