Why the housing market got no Trump bump

Investor confidence soared after the 2016 election of Donald J. Trump, sending the U.S. stock market on a tear that would last a full year.

It also made housing more expensive. That is because when the stock market rallies, the bond market usually sells off, and bond yields rise. Mortgage rates loosely follow the yield on the 10-year Treasury.

The average rate on the popular 30-year fixed mortgage hovered around 3.5 percent in the fall of 2016 and then shot up to as high as 4.3 percent immediately after the election, according to Freddie Mac. It stayed above 4 percent for the first half of the year and is currently just below that now.

The jump in mortgage rates, however, didn't immediately dampen consumer or builder confidence, which are both key to the housing market.

Builders were euphoric after the election, anticipating big deregulation in their sector. That has yet to happen, and now builders are fighting the Trump administration over its proposed tax plan, which cuts popular deductions for homeownership.

Housing starts and building permits are currently higher than they were a year ago, but the gains have been slower than expected. Builders complain of high costs for land, labor and materials. The Trump administration's anti-immigration stance has only hurt the construction labor shortage, which is largely fueled by Mexican workers.

"We need a national immigration reform bill. We have people that are afraid of being deported so they've gone underground. It's just made housing expensive," said Patrick Hamill, CEO of Denver-based Oakwood homes.

Home prices continue to climb due to the lack of supply, and that has sidelined both first-time and move-up buyers. Affordability continues to weaken, and if interest rates rise further, it will only get worse. Existing home sales have been falling since the summer, the inventory of homes for sale continues to shrink and single-family home construction still lags demand by a lot.

"The important question here is whether the optimism we saw after last year's election has manifested itself into the housing market this year. We aren't seeing signs that's the case," said Ralph McLaughlin, chief economist at Trulia, a real estate listing site.

"This softening of many of these indicators isn't necessarily the result of anything the Trump administration has or hasn't done, but, rather, we were expecting a possible bump in housing and we haven't seen that yet, unlike the labor market and unlike the stock market," he added.

Despite soaring home prices in certain hot urban markets, Trulia shows price gains softening around the country. This comes after robust gains during the Obama administration. The first-time homebuyer tax credit, launched in 2008 and expired in 2010, was a bailout after the housing crash and boosted home sales and prices, especially at the lower end of the market.

Under Trump, housing market conditions have worsened in more counties than they've improved.

High prices have thrown cold water on consumer optimism in housing, as reported this month by Fannie Mae. Close to half of the nation's largest housing markets are considered overvalued, based on historic pricing, and those prices have been juiced by monetary policy from the Federal Reserve that kept interest rates low. That policy is now reversing course.

"If the public understood Fed policy, renters and those millennials looking to buy a home would be marching on the Eccles [Fed] Building," wrote Peter Boockvar, chief market analyst at The Lindsey Group.

The administration's tax plan now has consumers more worried about the cost of housing and the possibility of losing the tax advantages of homeownership. A proposed cut in the cap on the mortgage interest deduction has gained the most attention from Realtors and homebuilders.

Zillow's CEO, Spencer Rascoff, said he thinks the bill "mostly sidesteps housing."

Rascoff, in an interview on CNBC's "Squawk Box," first pointed to a stronger economy and job growth, if not wage growth.

"That helps housing for sure, but what we need in housing though is more houses. What we would like to see is pro-growth policies that help development, help homebuilders build new homes, help apartment buildings come on line. That's what really helps housing from here," said Rascoff.

Here's a county-level look at the impact of Trump's election on local housing markets.