By Telis Demos
Financial stocks are surging following Donald Trump's election victory. Yet many companies tied to mortgages and home buying are down sharply.
These include some non-bank firms that make home-purchase and refinance loans before selling them into the securitization market. Rocket Cos. and UWM Holdings were down on Wednesday, by 4.5% and 2.4%, respectively. Some homebuilders are also off significantly, including D.R. Horton and Lennar, down 5.3% and 6.4%.
One major reason is what is happening in the bond market. Though the Federal Reserve may stick with its foreseen rate cuts, mortgages are not priced off those short-term rates. They are tied to yields on longer-term bonds such as 5-year and 10-year Treasurys. Those yields are up sharply, partly on expectations of a bigger federal budget deficit under Trump.
Thus mortgage rates are expected to follow. Higher mortgage rates mean many fewer people will have an incentive to refinance their existing mortgages, and it will also discourage some homebuyers. A daily rate tracker by Mortgage News Daily showed a 0.09 percentage point uptick for 30-year fixed-rate mortgages on Wednesday, to 7.13%, the highest level since July.
That can hit volume forecasts for mortgage originators, whose profitability is more closely tied to the number of loans they can make and sell, rather than how much they can charge borrowers. By contrast home lenders that are banks could actually benefit to a degree from higher longer-term rates, as they earn more on mortgages and other long-term loans they keep themselves. S&P 500 bank stocks were up nearly 10% midday Wednesday.
There may also be other parts of Trump's potential policy agenda that the market is thinking about when it comes to loans. Notably, the Wall Street Journal has reported that Trump allies have explored plans to end government control of Fannie Mae and Freddie Mac. That may reduce taxpayers' potential exposures. But some investors may also view this as a path potentially leading to more expensive, or more limited, credit availability for home borrowers. Freddie and Fannie's tradable shares are both up 20% or more on Wednesday.
Investors might also now expect that some existing Biden and potential Harris policies will be scuppered. Kamala Harris had proposed measures to incentivize more homebuilding, for example. And the Biden White House pushed for a Fannie Mae pilot program aimed at waiving the need for title insurance on certain mortgage refinancing transactions. KBW analysts in a recent note said that a leadership change at the Federal Housing Finance Agency, the regulator, could lead to the end of that effort.
Shares of some title-insurance companies, including Fidelity National Financial and Stewart Information Services, rose on Wednesday.
Not all mortgage-company stocks were down, as some of them also have very large mortgage-servicing businesses that can benefit from higher rates. Mr. Cooper Group, for example, was up 3%.
This item is part of a Wall Street Journal live coverage event. The full stream can be found by searching P/WSJL (WSJ Live Coverage).
(END) Dow Jones Newswires
November 06, 2024 12:49 ET (17:49 GMT)
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