Uncertainty brought on by presidential elections can affect national investment economics significantly. National economic policy will affect local real estate markets frequently with a lag but also in diverse ways dependent upon local conditions. Now that we have a winner, we are faced with the reality of our President-elect having a non-traditional background. Although this could serve to increase uncertainty, it could also bring an exciting change to the national status quo.
The state of the housing market
The housing market, as well as the overall economy, is much stronger than it was during the 2012 election. Though the U.S. Census Bureau announced this past July that the homeownership rate in the United States had hit the lowest point since 1965, home sales through May 2016 have experienced the largest increase since 2007. Many are expecting the US job market and income growth to increase during the Trump presidency, which in turn will have a positive medium term impact on housing, but the recent increase in mortgage rates could hinder any immediate increase.
Housing makes up 18% of the US economy and housing has historically been one of the most effective ways for Americans to build wealth. Donald Trump is a real estate mogul, and although some may be concerned by his inexperience, he will more than likely rely upon the real estate industry to spark the economy. It seems that his initial plans to boost homeownership and the real estate market are by deregulating the financial industry which supplies most of the credit to homebuilders and homebuyers. The idea is that deregulation should allow a greater amount of credit to enter the market spurring new construction and purchasing.
Trump’s plans for the real estate industry
Trump is also planning for major changes to US trade agreements, which he hopes will create opportunity in the manufacturing, warehouse and construction industries, creating even more jobs. It could be that he is planning to model his presidency after FDR, whose “New Deal” introduced various programs which acted to bring immediate economic relief during the Great Depression.
Trump also plans to overhaul how the US manages its immigration; starting with the criminally illegal and undocumented aliens, who will be fined and sent back. It is going to be much harder to prove that you are a legal resident of the United States, making it difficult for people to stay in the country or to get a federally funded loan. In areas with high illegal or undocumented immigrants these policy changes could have a powerful negative effect. On the other side, however, Trump also plans to change the governance structure of the Dodd-Frank Act which could have the positive effect of making lending regulations less onerous, allowing banks to increase home lending. However, Congress is also considering lowering the amount of mortgage interest deduction for high-income earners, which consequently may have a negative effect on high price homes.
How new policies may impact real estate investors
Having Donald Trump as our next president could be a great thing for real estate. The US has previously had real estate deal makers as US Presidents, perhaps most notably our founding fathers. Thomas Jefferson and George Washington, who treasured their property holdings, did all they could to ensure that the US Constitution protected private property. Trump and his cabinet will focus on deregulation which they hope will increase productive lending to the real estate markets.
ABL’s founder, Paul Ullman, believes that the Trump Administration will bring an interesting change to America.
[su_quote cite=”Paul A. Ullman”]It is now clear that a large majority of Americans at the county level believed that current US economic policy wasn’t working for them. Given that, it was inevitable that people would vote for change. The overall early impression of the Trump Administration is that it will act to create stimulus to the economy through financial deregulation, infrastructure spending, tax simplification and tax cuts. Property values won’t necessarily change as an immediate consequence, but over the medium term, as always, local housing markets will rise and fall relative to local job conditions, income growth and affordability.[/su_quote]
Local real estate investors, should carefully consider how national economic policy changes will affect local real estate conditions to determine where and how to invest.