How Will a Trump Presidency Impact The Real Estate Market?
The short answer when my clients ask me this question is: “No one really has a crystal ball, but we can use certain factors to predict whether the U.S. will experience a buyer’s market, seller’s market or an economic downturn”.
There is no doubt that with the unexpected election of Donald Trump, his presidency will have a vast impact on various sectors of the economy. The Real Estate Market has always played a key role in the economy because consumers all have a stake in real estate, whether buying, renting, and/or selling. Investors are looking for good return on investments and they are still picking up bargains from foreclosed and short sale properties. For the most part the DC Metro Region has maintained an uptick in sales and new construction year over year since late 2010. The District always out performs the outer suburbs, but with new roads and easier access to transportation, these suburbs are once again becoming sought after properties. I don’t see much of a huge fluctuation for the market for buyers in the Northern Virginia, DC and Maryland region and Trump’s new policies won’t matter much especially with higher priced homes and the luxury market.
Some factors to pay close attention to, if the Presidents policies impact the markets are: interest rates, repeal of regulations and new policies, the growth or lack of growth of the labor market, and his bold proposal on immigration.
Two weeks after the election, mortgage rates raised to the highest it has been from January 2016. This was bad news for buyers that were looking in the beginning in November, and then when they were ready to lock in found out that the new rates went up 40 basis points from 3.57% to 3.94%. However, rates are still pretty low, this time last year, the average 30 year mortgage was 3.97%. It is a no brainer that if interest rates continue to rise, it might disqualify buyers based on debt to income ratio formulas. The higher rate means higher mortgage payments. For example, in the two weeks leading up to the elections if a buyer didn’t lock in prior to the increase, their payments would be $58 more monthly on a $300,000 mortgage. What were the reasons for the dramatic rate increase? Some are saying volatility in the stock markets; low bond rates and the federal reserves also increase the fed rate by a quarter percentages point. Economist also predicts that the Federal Reserve will probably increase rates three times in 2017, depending on economic growth. Don’t blame Trump for the rising interest rate just yet. Interest rates were destined to go up - the federal reserves were not hawkish on rising them due to their policies of steady growth and recovery from the major recession of the late 2000’s. Currently rates are the highest we’ve seen in some time averaging 4.37% for a fixed rate 30 year mortgage, even though there was a dip in rates the first week in January. Not Trump’s fault though. What Trump will be responsible for is appointing the new Chairman of the Federal Reserve Board. The current chairman, Janet Yellen’s term ends in 2018. Some are predicting that Trump will replace Yellen with a more aggressive chairman. However, Trumps policies of protectionism are at conflict with the growth he wants (4 to 6% growth), which would be a vast improvement over the current 1% growth.
Regulations and Policies:
After the financial crisis (The Great Recession in the late 2000’s), The Dodd–Frank Wall Street Reform and Consumer Protection Act was signed into law by President Obama. The Dodd-Frank Act was set up to protect the consumer initially, but the same institutions that were responsible for the financial crises often criticize the Bill because they claim it restricts financial growth. The Trump administration vowed to repeal the Bill. Buyers might have more loan platforms available from banks to purchase homes; however, some predict predatory lending might become rampant again.
The Trump tax plan relieves the tax burden on many Americans, but critics claim that the plan benefits the wealthy and the average American will get back roughly $100 to $200 dollars. The tax plan also has a proposal to cap mortgage interest. Realtors, Loan Officers, Homeowners and potential buyers are interested to see if raising the standard deduction, along with capping the mortgage interest will yield bigger deductions.
The repeal of Obamacare (Affordable Care Act) is something to watch out for as well – would it result in more capital for the average citizen to put back in the economy, or will it result in loss of coverage and more of a financial burden for the middle class? ACA works for some Americans that could never afford Health Care before, but the premiums are quite lofty leaving some American’s on the plan wanting lower premiums and more service options. Many predict that not having some sort of coverage in place for the 25 million of Americans that will loose health care due to repeal, will be impact the economy in a negative way. In my opinion this will only have an impact if the jobs that ACA created are lost. The uninsured buying power has never been a factor for the economy.
According the Bureau of Labor and Statistics’ December wages rose at the fastest pace since mid-2009. The economy added 156,000 jobs in December and average hourly earnings increased by 2.9% year over year. If the labor force keeps growing at a steady pace under the Trump administration, we can expect consumer confidence continue to rise and buyers will more likely consider purchasing a new home vs. renting.
Another item to that draws major attention is Trump’s campaign promise of mass deportations and the impact it will have on the estimated 3.4 million undocumented immigrants that own homes in the U.S. This will result to roughly a $900 billion hit to the housing market if these immigrants are deported and force to leave their homes. A new wave of foreclosures will occur that certainly will benefit cash buyers and investors. There is no doubt in my mind that most of the same investors that made millions at the expense of the average homeowners during the financial down turn will profit from this. The average middle class American might not have the buying power as these investors do and again they will miss out, so my prediction is that it will be challenging to capitalize financially on Trump’s bold immigration policy.
Other factors to watch carefully are; Trumps policies on rebuilding infrastructure and penalizing corporations for moving factories over seas. Trump’s infrastructure bill is very much like Obama’s bill that got held up in Congress with one major difference: the funding. Obama offered the plan for State and Government control, Trump plan might be to give tax breaks to companies that will do the work. In the end the hope is that this will create jobs leading to consumer confidence. Penalizing corporations for moving companies overseas can deter some corporations, but they will most likely stay if offered tax breaks. Corporations care about their bottom line so they will take tax incentives and take advantage of lack of compliance and build their factories here, but in the end those factory jobs will be lost anyway due to automation, in my opinion.
Eventually, the goal is to protect the American worker, and instill buying confidence. This all ties into the Real Estate Market, a confident consumer sees a future where he/she can spend freely, while an unsure consumer holds on to cash due to fear.
Economists are basically taking a wait and see approach as to how these policies will play out – will Trump’s policies help the labor market, growth and consumer confidence? Time will certainly tell.