In August 2023, the U.S. Federal Reserve concluded an aggressive campaign to hike interest rates, which sent the cost of a mortgage skyrocketing to the highest level in two decades. The goal was to tame a soaring inflation rate, and thankfully, it worked, so the Fed has now cut interest rates six times since September 2024.
That isn't fast enough for President Donald Trump, though, who regularly calls for the Fed to cut rates more quickly to bring relief to homeowners. However, he might have found a workaround, as last Thursday, he instructed his representatives to purchase $200 billion worth of mortgage-backed securities (MBSes). These bonds hold thousands of mortgages and are sold to investors.
As is the case with all bonds, a sudden flurry of buying activity will increase the price of each MBS, while decreasing its yield. A lower yield, in theory, will translate to lower interest rates on mortgages, thus helping Trump achieve his goal without help from the Fed.
Federal Housing Finance Director Bill Pulte said government-controlled enterprises Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation) will carry out the $200 billion in MBS purchases in the public market.
Image source: Getty Images.
This policy is a tailwind for one of my favorite stocks
Existing home sales in the U.S. are currently hovering near a five-year low, and according to Redfin, there were 529,770 more sellers than buyers in November. Elevated interest rates have reduced the borrowing capacity of first-time home buyers, shutting many of them out of the market.
Additionally, many existing homeowners are locked into 30-year mortgages at significantly lower interest rates than what is currently available, so even if they wanted to upgrade or downsize, moving isn't a financially sound decision at this time. That takes even more would-be buyers out of the market. It's very hard for real estate brokers to deliver sales in this environment, especially at favorable prices.
US Existing Home Sales data by YCharts
Douglas Elliman (DOUG 0.43%) is America's fifth-largest real estate brokerage company, but it's one of the leaders in luxury markets in California, Florida, New York, Texas, and more. It was founded in 1911, so it has over a century of experience navigating the peaks and troughs of the housing market.
Douglas Elliman currently employs 6,600 brokers in 113 offices across America, and they sold $30.1 billion worth of real estate during the first three quarters of 2025 (ended Sept. 30). That was up 9% from the year-ago period, so the company is still growing despite the tough market conditions, which speaks to the quality of its business.
Douglas Elliman stock soared by 42% during 2025, crushing the S&P 500 index, which was up just 17%. I bought the stock last year because the Fed was cutting interest rates, which I felt would be great for its business. The Trump administration's decision to buy $200 billion worth of MBSes to lower mortgage rates only adds fuel to my bullish thesis.
NYSE: DOUG
Key Data Points
If it jump-starts the real estate sector as intended, Douglas Elliman's sales growth could accelerate as we progress through 2026, which would be a further tailwind for its stock.
Douglas Elliman stock looks very cheap
Based on Douglas Elliman's trailing-12-month revenue of $1.03 billion and its current market capitalization of $220 million, its stock is trading at a price-to-sales (P/S) ratio of just 0.2. That is a steep discount to its peak of 0.8, which was set during the last housing boom in 2021. I'm not suggesting the stock will get back there, but it would result in a fourfold return for investors if it did.
Douglas Elliman is also much cheaper than its core rival, Compass, which has a P/S ratio of 1. Compass is America's largest residential real estate brokerage company, so you could argue it deserves a premium valuation to some degree, but I think the substantial gap leaves plenty of room for Douglas Elliman to gain ground. In fact, just three years ago, they were actually similarly valued.
DOUG PS Ratio data by YCharts
Even if Trump's new plan doesn't have a material effect on the housing market, the Fed is expected to cut interest rates two more times during 2026 anyway. Additionally, Trump will have the opportunity to appoint a new Fed chairman in May, who may share his view that rates should be significantly lower.
Therefore, I believe Douglas Elliman stock is poised to be a significant winner in 2026.
