Eight years ago during the 2008 Presidential race, the housing market was a huge topic for debate, as the nation was in the midst of a real estate and mortgage market collapse and Great Recession. How much things have changed since then, as real estate, mortgages and housing was barely ever mentioned on the 2016 campaign trail. But now that Donald Trump has been elected as the 45th U.S. president, what impact will he have on U.S. housing?
As Trump has never served in public office before, many of his policy decisions and stances remain a mystery. However, he did make a considerable fortune as a real estate mogul and is on record about our housing market far more than any other issue. We polled credible sources, economists and experts from the field and assembled this consensus of analysis – although it’s important to mention that some of it is still speculative, like any discussion about the economy.
Here are 12 ways President Trump may affect the real estate, mortgage and housing markets:
- A boost of consumer confidence…or a lack thereof?
So much of the housing market is driven not just by fact and logic, but also by individual perceptions and emotion, summed up by analysts as consumer confidence.
Economists foresee a measurable boost in consumer confidence in Red states (Republican, or those that largely voted for Trump). Emboldened and given hope by the business-savvy Trump as president, consumers are expected to buy more and spend more, including on their homes.
Meanwhile, people in Blue – or largely Democratic – states could be waiting for the sky to fall, and hold off on important financial decisions like buying a new house, slowing down housing, lending and building in these states.
The fascinating this is that when it comes to consumer confidence, both with be “right” – a self-fulfilling prophecy that could speed up or slow down the housing market, respectively, in different regions of the U.S. simultaneously.
- Loosen lending standards
One thing is for certain is that Trump plans on loosening mortgage lending standards, something he reiterated as recently as August during a speech at the National Association of Home Builders (NAHB).
Loosening lending standards means that banks would be encouraged and incentivized to give out more mortgage loans to more people, including those with lower credit, incomes, or people who wouldn’t necessarily qualify now.
While this may seem like a radical move, remember that credit standards tightened significant ally after banks were burned by the mortgage crisis, after a period when it was easier than ever to get a mortgage loan. Will Trump balance the standards for getting a mortgage loan again? Many economists think so, which will help boost the current U.S. homeownership rates, which are the lowest levels in 30 years.
But what’s the overall cost to that easing of lending, pundits point out? Didn’t we learn our lesson after the mortgage meltdown and Great Recession eight years ago? Will President Trump’s policies make it so easy to get a mortgage loan that it creates another real estate bubble?
We know what he’ll do – but not to what degree, and what the outcome will be.
- More building increases housing supply
One of the strange paradoxes of our current housing market is that buyer demand is high, and yet we’ve been seriously lagging when it comes to new home construction and building housing projects. In fact, a recent study by the Urban Institute revealed that there are more than 400,000 fewer homes being built than are needed.
Trump is expected to exercise his power and influence to reduce regulatory land-use and zoning restrictions, which should jump-start home construction. In an August meeting of the National Association of Home Builders, Trump said, “there’s no industry, other than probably the energy industry, that is more overregulated than the housing industry.”
Part of the reason builders currently aren’t breaking ground on more projects is that cost to build new homes has become prohibitive because of regulations, something Trump aims to alleviate.
“Twenty-five percent of the cost of a home is due to regulation,” said Trump at the same meeting. “I think we should get that down to about 2 percent.”
However, a lot of those regulations are enacted on a state and local level – out of easy reach for President Trump to change. Additionally, another one of Trump’s major platforms – immigration reform – could significantly reduce the number of available workers for new home construction, according to financial experts, since immigrants make up a large part of the labor force for building and new construction.
- Will uncertainty over Trump’s presidency keep the Fed from raising rates?
One thing we know for sure is how uncertainty and volatility play out when it comes to lending, the Fed, and interest rates. Already we’ve seen a stock market swoon – and then historic rally – and foreign markets responding erratically to the news that Trump won the election. As would be predicted, investors are buying US mortgage-backed securities because of the perceived safety of the real estate market (just like they did upon news of Brexit). Analysts predict that increased uncertainty and movement of money into mortgage-backed securities will prevent the Fed from raising rates in December when they meet.
- Great news for mortgage rates?
If the Fed doesn’t raise rates that will, in turn, keep mortgage interest rates low – or even drop them further. For those who want to take advantage of the historically low-interest rate environment we’ve enjoyed the last several years, uncertainty over Trump can actually prolong low-rate lending opportunities. Additionally, combining low-interest rates with easier lending standards should really skyrocket home buying.
But will all of this add up to a quickly overheating housing market and a huge real estate bubble that will cost economic disaster again once it pops?
- Eliminate the Consumer Financial Protection Bureau
Trump will look to dismantle the Consumer Financial Protection Bureau – or at least clip its wings by making it subject to congressional appropriation. The Consumer Financial Protection Bureau was first part of the created Dodd-Frank Act and aims to protect real estate and mortgage loan consumers from predatory lending and financial services. Critics point to the essential rule the CFPB plays in protecting consumers, but Republicans counter that the agency’s “regulatory harassment of local and regional banks, the source of most home mortgages and small business loans, advantages big banks and makes it harder for Americans to buy a home.”
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Look for part two of this blog with the remaining 6 ways President Trump may affect real esate and mortgages!