EB SECURITIES released a research report stating that despite the Federal Reserve's substantial interest rate cuts from 2024 to 2025, the US real estate market has not entered a recovery cycle and remains in a state of "weak supply and demand." As the 2026 US midterm elections approach, a "Trump Housing Reform" appears imminent. The firm speculates it will likely follow three main paths: reducing mortgage costs, activating the supply market, and implementing further rate cuts. Potential measures include extending the maximum term for housing loans, making mortgage rates transferable, and declaring a national emergency to release federal land for housing construction. However, considering that significant rate cuts have difficulty effectively transmitting to mortgage rates, policy actions face legislative and judicial constraints, and are compounded by tariff risk premiums and lagging construction cycles, the structure of real estate supply and demand may be hard to reverse in the short term. The baseline judgment is that the US real estate market will maintain a state of weak recovery in 2026. The main views of EB SECURITIES are as follows.
Why does EB SECURITIES believe the Trump housing reform will struggle to boost the US real estate market? Despite the Federal Reserve's substantial interest rate cuts from 2024 to 2025, the decline in mortgage rates has been limited, preventing a recovery cycle and leaving the market characterized by weak supply and demand. Looking ahead, as the 2026 US midterm elections approach, a "Trump Housing Reform" is on the horizon. The firm speculates it will broadly follow three paths: lowering mortgage costs, stimulating the supply market, and cutting rates. Yet, given the poor transmission of rate cuts to mortgages, policy constraints from legislation and the judiciary, plus tariff risk premiums and construction lags, the supply-demand structure of real estate might be difficult to reverse quickly. The baseline forecast is for the US real estate market to remain in a state of weak recovery in 2026. For a significant recovery in the US property cycle to materialize, the firm calculates that a mortgage rate of around 5% could be a trigger indicator. If mortgage rates fall into this desirable range, the corresponding 10-year US Treasury yield might be around 3.2%-3.3%.
Amid the Federal Reserve's significant rate cuts from 2024 to 2025, the US real estate market has not experienced a recovery cycle and continues to show weakness in both supply and demand. On the demand side, affected by high home prices, high mortgage rates, and an affordability crisis, residential homebuying and mortgage demand have continued to decline, with sales of new and existing homes in 2025 falling below 2024 levels. On the supply side, the existing home market faces tight inventory due to the "lock-in effect," while new home supply has declined due to rising tariffs on building materials and interest rate volatility. US home prices have remained high, supported by tight supply.
Why has the US real estate market remained weak since the Fed began cutting rates? The core reason lies in the limited decline in mortgage rates. Despite consecutive Fed rate cuts, the narratives of "re-inflation" under tariff policies and "de-dollarization" amid the US debt crisis continue to push up term premiums in the long run. Mortgage rates have stayed above 6%, significantly higher than the average rate on existing mortgages of around 4.3%. The "lock-in effect" has led to insufficient supply of existing US homes, while new home supply has weakened due to tariff disruptions, together causing a shortage of US housing supply. Simultaneously, as supply has been chronically tight, home prices have continued their upward trend, creating a vicious cycle of "tight supply → rising prices → further deterioration of demand."
With the 2026 "Trump Housing Reform" looming, can US real estate usher in a recovery cycle? As the 2026 US midterm elections approach, a "Trump Housing Reform" appears imminent. The firm speculates it will likely follow three main paths: reducing mortgage costs, activating the supply market, and implementing further rate cuts. Potential measures include extending the maximum term for housing loans, making mortgage rates transferable, and declaring a national emergency to release federal land for housing construction. However, considering the challenges in transmitting significant rate cuts to mortgage rates, policy constraints from legislation and the judiciary, and the叠加 effects of tariff risk premiums and lagging construction cycles, the structure of real estate supply and demand may be difficult to reverse in the short term. The baseline judgment is that the US real estate market will maintain a state of weak recovery in 2026.
How can forward-looking indicators for the US real estate cycle be constructed? Looking ahead to 2026, although the baseline scenario is a weak recovery for US real estate, constructing leading variables remains crucial for studying the US property cycle. Observing the spread between current US mortgage rates and the average rate on outstanding mortgages can provide a good gauge for identifying turning points in the US real estate cycle. Historical data shows that when this spread narrows to the 90-100 basis points range, a mortgage rate of around 5% could serve as a trigger indicator for the US property cycle. If mortgage rates fall into this desirable range, the corresponding 10-year US Treasury yield might be around 3.2%-3.3%.
Risk提示: Fluctuations in global commodity prices; a US economic recession exceeding expectations.
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