Donald Trump’s election sent shockwaves through the world and is considered one of the biggest upsets in political history. Since election day, speculation has run abound about what a Trump administration would mean for U.S. economy, and for the real estate market. While we will receive the answers over the next four years, or potentially eight, the brief time since Trump’s inauguration has provided us some insight into the type of policies his administration will seek to enact. This allows us to forecast real estate trends that are likely to occur over the course of a Trump presidency. Here are five projected trends expected to affect the real estate market.
Trump election sparks short-term stimulus to the economy.
The immediate boost to the stock market was the trend that was easiest to see. Whenever a candidate promises tax breaks for corporations and deregulation, investors begin to see green. Following Trump’s first address to a joint session of Congress as President, the DOW broke 21,000 for the first time in U.S. history. Historically, when the stock market is doing well, consumer confidence rises, and individuals are more likely to invest in real estate. While it’s unclear how the stock market will react over years of the Trump administration, the short term has seen a definite boost. Look for Americans to react positively to the surging Bull market, and for consumers to invest in real estate.
Real estate trends driven by deregulation could give homebuilders a boost.
According to a recent report from the National Association of Homebuilders, 25% of the cost of a new home comes from regulations. Because of his real-estate background, Trump is acutely aware of how regulations contribute to higher construction costs. During his campaign, Trump made promises to eliminate what he views as excessive regulations by the federal government. He signed an executive order in January mandating that for every new federal regulation implemented, two must be rescinded. Rolling back these regulations could result in lower building costs for individuals looking to build homes. Trump even referenced this report in a campaign speech last August. He promised to get regulatory costs on new homes down to 2%.
Dodd-Frank changes result in more loans by banks
President Barack Obama implemented the Dodd-Frank Act in response to the 2008 financial crisis. Because irresponsible lending by banks was one of the primary drivers of the crash, the new legislation forced large banks to pass new regulatory exams as well as creating new regulatory institutions, such as the Consumer Financial Protection Bureau.
Trump has been a fierce critic of Dodd-Frank, arguing that excessive regulations have impeded economic growth. One way is by making it harder for banks to lend to consumers and small businesses. He already signed an executive order designed to begin the immediate rollback of Dodd-Frank. Ideally, less regulation will result in banks providing more loans, especially smaller banks. More loans would result in more home building. Critics of the decision to rollback these regulations argue that without these regulations, banks will go back to the same irresponsible practices that caused the crash in the first place.
Lack of skilled laborers could affect home prices
It’s no great secret that there is a shortage of skilled laborers in the U.S. While many modern workers focus on things like SEO and keeping up with the trends of the digital age, plumbers, electricians and other trades are in high demand.Trump’s position during the campaign on infrastructure spending and his immigration policy would both affect the labor pool. Trump announced in late February that he would be asking Congress to approve a $1 trillion infrastructure bill. Trump frequently referenced America’s “crumbling infrastructure,” during his campaign. This proposal is his plan to address it.
Additionally, Trump has championed tougher immigration laws, including the infamous wall. He is also an advocate of more deportations. Many immigrants have carved out space for themselves in the construction trade.
Trump’s infrastructure bill would pull workers away from projects like homebuilding to address the nation’s bridges and highways. Tougher immigration laws would further restrict the labor pool which could result in higher wages and higher cost to retain the skilled workers necessary to build things.
Higher Interest rates
The downside of a strengthening economy is that it’s usually accompanied by rising interest rates. The interest rates went up in December for what is only the second time in the past decade. Comments from policymakers indicate there will be further hikes this year. So how do rising interest rates results in real estate trends? Rising interest rates generally result in mortgages rising as well, which directly impacts home affordability. The promise of future interest rate hikes will likely spur some investors to invest in a home now. The reason is because it will likely result in a cheaper mortgage. Others may find the prospect unaffordable.
Ultimately, the Trump election is a lot of potentially good news mixed in with some bad news when it comes to real estate trends. Time will tell how it all shakes out, but there are reasons for optimism when it comes to real estate in 2017.