Trump is considering ending the capital gains tax on home sales. Since Covid, the housing market has seen big changes, influencing many homeowners’ choices about selling. Many owners are stuck with lower mortgage rates. Some people locked in rates as low as 1.99% for 15 years during previous lows. Additionally, those who have owned their homes for a long time face taxes on gains over $500,000 for married couples and $250,000 for singles.

Median Home Sale Prices

Currently, the median sale price for a home in the U.S. is about $422,000. Homeowners stuck with low rates might see lower capital gains. Changing to new loans with rates around 6.8% could make selling less appealing. In areas where home values are rising quickly, some owners could see gains over $1 million. Right now, only gains above $250,000 for singles and $500,000 for married couples filing jointly are taxed, which discourages selling homes that have been owned for a long time. The proposal suggests either removing this tax or raising the exemption limits to encourage more homeowners to sell.

Impact on Financial Markets and Sectors

If this proposal moves forward, it could negatively affect homebuilder stocks and related indexes. A sudden increase in available homes could lead to more competition with new builds, possibly limiting price growth. We’re considering protective puts on ETFs like the iShares U.S. Home Construction ETF (ITB), especially since the current active housing inventory of about 1.21 million units is still quite low and could increase fast. Conversely, a rise in home sales would likely benefit home improvement retailers. More transactions usually lead to higher spending on renovations and repairs by both sellers and new owners. This makes call options on companies like Lowe’s and Home Depot a good opportunity, as they could see increased sales activity. The financial sector could also gain from increased market liquidity. More home sales mean more mortgage originations, title insurance policies, and other fee-based services. We are looking at bullish positions on regional bank ETFs, as the Mortgage Bankers Association predicts a 12% increase in purchase mortgage originations for 2024, a number this policy could easily boost. We must also acknowledge the uncertainty of this proposal; it is not yet law. Historically, the CBOE Volatility Index (VIX) has tended to rise in months leading up to a presidential election, as seen in 2016 and 2020. This policy discussion adds more unpredictability, making long volatility positions a smart way to protect against sharp market fluctuations in the upcoming weeks. Create your live VT Markets account and start trading now.

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