EB SECURITIES: The 2026 "Trump House Reform" is about to be launched, can the American real estate market usher in a recovery period?

EB SECURITIES released a research report stating that in the backdrop of significant interest rate cuts by the Federal Reserve in 2024 to 2025, the US real estate market did not enter a recovery period and still remains in a "weak supply and demand" state. As the 2026 US midterm elections approach, the "Trump housing reform" is looming, with the speculation that it will involve reducing mortgage costs, activating the supply market, and lowering interest rates through measures such as extending the longest term for housing loans, allowing mortgage rates to be transferable, and declaring a national emergency to release federal land for housing construction. However, considering that the significant interest rate cuts are difficult to effectively transmit to mortgage rates, and policy measures are also constrained by legislation and judiciary, adding on to the tariff risk premium and construction cycle lag, the supply and demand structure of the real estate market may be difficult to reverse in the short term, resulting in the baseline judgment that the US real estate market will maintain a weak recovery state in 2026. The main points of EB SECURITIES are as follows: Why do we believe that the Trump housing reform will struggle to boost the US real estate market? In the backdrop of significant interest rate cuts by the Federal Reserve in 2024 to 2025, due to limited reductions in mortgage rates, the US real estate market did not enter a recovery period and still remains in a "weak supply and demand" state. Looking ahead, as the 2026 US midterm elections approach, the "Trump housing reform" is looming, with the speculation that it will involve measures to lower mortgage costs, activate the supply market, and lower interest rates, but considering that significant interest rate cuts are difficult to effectively transmit to mortgage rates, and policy measures are also constrained by legislation and judiciary, added to the tariff risk premium and construction cycle lag, the supply and demand structure of the real estate market may be difficult to reverse in the short term, resulting in the baseline judgment that the US real estate market will maintain a weak recovery state in 2026. If a clear recovery in the US real estate cycle were to occur, it is estimated that a mortgage rate of around 5% or the start indicator of the US real estate cycle would be needed, and if mortgage rates were to fall within an acceptable range, the corresponding 10-year US bond rate would be around 3.2%-3.3%. In the backdrop of significant interest rate cuts by the Federal Reserve in 2024 to 2025, the US real estate market did not enter a recovery period and still remains in a "weak supply and demand" state. On the demand side, due to high housing prices, high mortgage rates, and affordability crises, residential purchase and mortgage demand continue to decline, with new and existing home sales in 2025 lower than the levels in 2024. On the supply side, the existing home market is tight due to the "lock-in effect," while new home supply has fallen due to fluctuations in building material tariffs and interest rates, with US house prices continuing to rise under tight supply conditions. Why has the US real estate market remained weak despite Fed interest rate cuts? The core reason is the limited reduction in mortgage rates. Despite consecutive interest rate cuts by the Federal Reserve, the narratives of "re-inflation" under tariff policies and "de-dollarization" under US debt crisis continue to push up long-term term premia, keeping mortgage rates above 6%, significantly higher than the average rate of around 4.3% for existing mortgage loans. Under the "lock-in effect," the supply of existing homes in the US is inadequate, while new home supply is weakening due to tariff disturbances, leading to a shortage of housing supply in the US. Additionally, due to long-term tightness on the supply side, house prices continue to rise, creating a cycle of "supply constraints rising prices further worsening of demand." Will the US real estate market enter a recovery period with the "Trump housing reform" in 2026? As the 2026 US midterm elections approach, the "Trump housing reform" is looming, with the speculation that it will involve measures to lower mortgage costs, activate the supply market, and lower interest rates through steps such as extending the longest term for housing loans, allowing mortgage rates to be transferable, and declaring a national emergency to release federal land for housing construction. However, considering that significant interest rate cuts are difficult to effectively transmit to mortgage rates, and policy measures are constrained by legislation and judiciary, along with the tariff risk premium and construction cycle lag, the supply and demand structure of the real estate market may be difficult to reverse in the short term, resulting in the baseline judgment that the US real estate market will maintain a weak recovery state in 2026. How to construct leading indicators for observing the US real estate cycle? Looking ahead to 2026, although the baseline scenario is a weak recovery in the US real estate market, constructing leading variables still plays a significant role in studying the US real estate cycle. By observing the interest rate differential between current US mortgage rates and existing mortgage rates, the turning point of the US real estate cycle can be better understood. Historical data shows that when the differential drops to the range of 90-100 basis points, which is the starting indicator for a mortgage rate of around 5% or the US real estate cycle, a reduction in mortgage rates to an acceptable range corresponds to a 10-year US bond rate of around 3.2%-3.3%. Risk warning: fluctuations in global commodity prices, unexpected economic recession in the US.