Find clarity in an uncertain future.
Whether you like him or not, Donald Trump delivered on his promise to shake up America’s political landscape. As we all wonder what will come next, real estate agents must consider how the new president will affect the housing market.
At this stage, predicting the future is like looking through frosted glass. Despite our best efforts to see through the haze, the picture remains murky and blurred. But even in the face of such uncertainty, a little knowledge goes a long way.
Here’s the story so far.
A Shift in Strategy
Housing prices rose 5.5% from September 2015 to September 2016. As home sales also rise, experts predict the growth to continue.
President Trump plans to fuel this progress by:
- Deregulating big banks like JPMorgan.
- Lowering taxes.
- Broadening consumer credit.
At the same time, Trump plans to dismantle the Consumer Financial Protection Bureau and encourage higher interest rates. According to Steven Mnuchin, Secretary of Treasury, President Trump will try to initiate the “largest tax change since Reagan.”
Trump’s tax changes would consolidate seven tax brackets down to three, cap itemized deductions, and increase standard deductions.
“Mortgage interest deductions would help homeowners by lowering the cost of their interest on an after-tax basis,” says Michael Fratantoni, chief economist of Mortgage Bankers Association.
Trump’s tax overhaul may sound positive, but it presents a few challenges.
Under the current system, itemized deductions help consumers tackle their mortgage interest with tax breaks. Under Trump’s proposal, it might make more sense to take the proposed standard tax deduction of $15,000, as it would often reward a larger amount than itemized deductions.
While this change will streamline the tax filing process, it could also remove the tax advantage of purchasing property over renting it. If tax breaks are a deciding factor for a potential homeowner, this new plan might persuade them to continue renting.
The Trump administration’s other policies, such as mass deportation, could cause a ripple effect on housing prices.
As Bloomberg notes:
“President Donald Trump’s immigration policies threaten to crack a foundation of the American economy: the residential real estate market. Legal and otherwise, immigrants, long a pillar of growth in homebuying, are no longer feeling the warm welcome and optimism necessary for their biggest purchase.”
The New Secretary of Housing and Urban Development
President Trump selected Ben Carson, a retired neurosurgeon, to act as the Secretary of Housing and Urban Development. Trump believes wholeheartedly in Carson, saying he “has a brilliant mind and is passionate about strengthening communities and families.”
Trump and Carson have talked about Trump’s urban renewal plan, which the President says will lay out a “new deal for Black America.”
Though we know few specific details about what Carson will do in his new role, Trump said he wants to give cities and states the ability to seek out a federal disaster designation. With this plan, federal funds could be used to initiate the rebuilding of vital infrastructure, demolish abandoned properties, and increase law enforcement. According to Trump, consumers would be encouraged to purchase homes and start businesses in neighborhoods that were once considered bad areas.
As Trump looks to temporarily reduce taxes in certain regions to encourage inner city investment, he also wants foreign companies to relocate in what he calls “blighted neighborhoods.” With this plan in place, inner cities would transform into major centers of economic revival.
The Wealth Effect
The stock market increased by over 4% during Trump’s first month in office, which is the highest market climb during a president’s first 30 days since Franklin D. Roosevelt in 1945.
The wealth effect philosophy argues that as stock prices rise, potential homebuyers gain access to additional funds. Because of this, they’ll be more likely to purchase their first home or upgrade to a larger home.
Dr. Robert Johnson, President and CEO of The American College of Financial Services, says “…stock returns tend to be much lower in rising rate environments than in falling rate environments. Bottom line, stock investors should expect lower returns as rates rise over the next few months and years.”
The wealth effect doesn’t last forever, as people eventually revert to more cautious spending habits after realizing they aren’t as flush with cash as they originally thought. Because of this, real estate agents should approach a rising market with caution, as it could signal a fall right around the corner.
Final Recommendation: Wait and See
Some market experts foretell great profit for the housing market during Trump’s presidency. Others predict that low returns will quickly follow any perceived improvements.
During this uncertain time, real estate professionals should remain alert and stay informed about relevant legislation impacting their profession. Caution may be your strongest ally.
This article is for informational purposes only.
Contributor, Amy King. MoneyTips. “Here’s How Trump’s Tax Plan Could Affect the Housing Market.” Fox Business. Fox Business, 6 December 2016. Web. 24 February 2017.
Decambre, Mark. “How Trump’s stock market ranks in his first 30 days in office.” MarketWatch. 20 February 2017. Web. 27 March 2017.
Diamond, Jeremy. “Trump Lays out ‘Urban Renewal’ Proposals Alongside Bleak Portrayal of Black America.” CNN. Cable News Network, 26 October 2016. Web. 24 February 2017.
Gopal, Prashant. “Why Trump’s Immigration Crackdown Could Sink U.S. Home Prices.” Bloomberg. 22 February 2017. Web. 27 March 2017.
Long, Heather. “Trump Stock Market Rally: Likely to Keep Going in 2017.” CNNMoney. Cable News Network, 13 December 2016. Web. 28 February 2017.
Martin, Emmie. “If you’re planning to buy a house this year, here’s how the Trump administration could affect you.” Business Insider. 7 February 2017. Web. 27 March 2017.
O’Connell, Brian. “Five Ways the Trump Administration Will Impact the 2017 U.S. Housing Market.” TheStreet. TheStreet, 10 December 2016. Web. 24 February 2017.
Taylor, Jessica. “Trump Taps Ben Carson For Secretary of Housing and Urban Development.” NPR. NPR, 05 December 2016. Web. 24 February 2017.