People all across the country were stunned last week when Donald Trump won the 2016 election and became the next President of the United States. How will the real estate market be impacted by Donald Trump’s victory and Republicans controlling both chambers of Congress? Though Mr. Trump is a real estate man, his policy platform has been largely vague on real estate proposals.
Using housing as a vehicle to lead economic recovery has been a practice in the past that was worked well. Since Trump has been heavily into the real estate market himself for the past several years, many people feel Mr. Trump will have a positive effect the real estate market.
There are several things that could impact the real estate market:
Using real estate to jump start the economy
Trump has used real estate himself as an investment, and although he hasn’t said much about his housing platform, what he has said indicates that he’s interested in boosting home ownership.
Much of Trump’s platform has centered around deregulating the financial market in order to more fully revive it, and that alone could also give a boost to real estate.
We could see lower mortgage rates
Many different factors affect mortgage rates and they change each day based on what the market is doing. Unforeseen events have heavy impacts on the stock market, so the day after the surprising outcome of the election, we saw a bit of panic and a plummeting market. However by the end of the day, it had bounced back.
We saw this same set of events after Brexit with markets dropping after the unexpected vote to leave the European Union, but a few months later, the market was back to normal and business as usual.
The international economy also has an effect on the exchange rate, and there could be some disturbance as the rest of the world reflects on the outcome of our election. Mortgage rates were falling because investors are experiencing steady returns on US backed mortgage securities which has therefore boosted or solidified their confidence in the US housing market.
In addition the Fed will most likely delay the planned December rate hike because of other global economic chaos and uncertainty. This will likely be good news for borrowers and could fuel a significant impact on mortgage refinancing.
Getting loans could get easier
If Mr. Trump wanted to make it easier for people to own their homes, he could lower premiums for FHA loans and loosen regulations on borrowing. There could be a move away from stringent mortgage underwriting to more normal lending. Credit is still tight for mortgages as evidenced by very high credit scores among those who are getting approved.
Many regulations are likely to get the ax
This is that the entire Republican party has been screaming about for a long time now and something Donald Trump says will be a priority for his administration. Most importantly, he will address banking regulations first. In July of this year, the Republicans approved substantial changes to the Consumer Financial Protection Bureau (CFPB), and there are heavy rumors of the Dodd-Frank Act being repealed to remove regulations on lenders.
Approximately 10,000 local and community banks have the traditional source of funding for construction and land development loans. With less regulatory burden, these small banks can make more loans and will boost home building activity – something that is needed in the current housing shortage situation. Relaxing regulation on lending will immediately make it easier for consumers to obtain loans and could positively impact homeownership.
Easing building regulations to some extent, could mean more affordable homes for consumers. Mr. Trump has repeated how the housing industry is one of the most overregulated industries in our country. Currently 25% of costs to build a house a regulatory costs and Mr. Trump has expressed his desire to decrease that to 2%. In recent years, newly constructed home prices have been much higher than existing home prices. A decrease in costs to build could stimulate growth and make homes more affordable to more people.
What will happen to the mortgage interest deduction?
Last year, a tax plan that Trump shared with us is that he specifically said that he would preserve the mortgage interest deduction. His plan did not go into specific details, but again, being a real estate mogul himself, things are likely to stay positive in this area.
Will Fannie Mae or Freddie Mac survive?
Something to watch under Trump could be what happens to Fannie Mae and Freddie Mac. Fannie Mae and Freddie Mac, two government-sponsored enterprises (GSEs), are currently under government conservatorship and are currently projected to run out of funds in 2018. These two institutions made horrendous business decisions in the past to buy subprime mortgages, create an internal hedge fund, and be led by political players in an attempt to serve political goals. That mistake cost taxpayers hundreds of billions of dollars. Fannie Mae and Freddie Mac may not survive and Mr. Trump will need to figure out either how to save them or what, if anything, to put in their place.
What’s the Outlook?
If you are rooting for the economy to improve, you would hope that Mr. Trump’s background as a business person and real estate developer would pave the way for more growth and more development which would be a net beneficial for real estate.