Making Real Estate Great Again: Predicting Real Estate Under the Trump Administration

Market Report provided by Nest Seekers

This week saw the end of a very historic election in America with the rise of Donald Trump as the 45th president of the United States. During his campaign, he has talked about trade, immigration, unemployment and homeland security. Yet, despite his strong background in real estate, he spoke little about this, and his electoral victory comes with mixed reactions. As Ralph McLaughlin, chief economist of Trulia, pointed out, home buyers from blue states will hesitate to make large investments due to their feelings of economic uncertainty. On the other hand, those from the red states—primary supporters of Trump’s campaign—will have a more confident outlook.

While it is too early to predict, experts are speculating about the implications of a Trump presidency on real estate. Given what is known about the president-elect, his views and his campaign promises, here are several predictions:

1.) Increase in the Construction Programs

During his campaign, President-Elect Trump pledged to launch massive rebuilding programs on infrastructures such as highways, tunnels, airports, schools and hospitals—executive actions that can also increase the number of jobs for the country. This will directly impact construction activities by providing a larger supply of materials and labor, and at the same time, a higher level of demand for housing similar to how the construction of the Golden Gate Bridge and the Hoover Dam created opportunities for the unemployed. Higher productivity may eventually lead to higher GDP for the country—a factor that can lead to increase in consumer confidence.

2.) More assistance to community colleges

More government programs require more labor, and community colleges are essential to providing that need. The Trump administration may provide further funds for community colleges in order to produce graduates who specialize in skills such as welding, plumbing and electrics. They can eventually help in ensuring the success of President Trump’s projects in infrastructure development.

3.) Changes in Financial Regulations

Ever since the recession, the Dodd-Frank Wall Street Reform and Consumer Protection Act has been implemented in order to regulate financial market activities and to protect consumers from a company’s malpractices. Republicans are hoping to repeal this because they argue that this law makes it much more difficult for Americans to acquire homes. A Trump administration can cause a lift in compliance costs on banks that offer funding for construction and land development. As a result, more loans will be made which can also boost up home building activities. However, this may need to be done in moderation due to a possible risk that an over loosening of financial regulations—especially on larger banks—can cause excessively high interest rates and massive bailouts in the future.

4.) Changes in Lending Policies

In a Trump administration, consumers may be able to secure more mortgages should his policies allow lending practices to become less stringent. In the past years, lending institutions have been conservative in order to avoid lawsuits issued by the government. On the other hand, if the administration strongly litigates their activities, the reverse effect may happen and lenders will make it even more difficult for consumers to receive mortgages. According to Bob Edelstein, co-chair of the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley, blue-collar, middle aged Americans may be affected by this the most.

5.) Lowered building costs

The costs of building homes can decrease as land use and zoning regulations are reduced. Typically, a newly constructed home is more expensive not because of materials and labor costs but because of these extra regulations. Since infrastructure was one of his campaign promises, President Trump may try to further ease construction costs by repealing policies that can make his programs too expensive.

6.) The Elimination of Fannie Mae and Freddie Mac

A Trump presidency can also lead to the elimination of the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Association (Freddie Mac). Back then, these institutions have made politically-motivated decisions at the cost of billions of taxpayer dollars. Management reforms over the years allowed Fannie and Freddie to operate so well that it repaid all taxpayer losses through providing government-guaranteed mortgages to low-income buyers while keeping mortgage default rates low. President Trump hasn’t outlined a replacement plan for Fannie and Freddie which U.S. real estate relies on, but should he and the Republicans eliminate them, the cost of mortgages may skyrocket.

7.) Less Insurance Coverage for Disaster-Related Damages

Right now, there is a $24 billion budget in federal insurance coverage for damages caused by natural disasters. Those who live in major disaster risk areas would receive this, but the new administration may decrease this budget in favor of other projects. Homeowners would thus need to pay more.

8.) Major tax reform

President-elect Trump has promised to simplify taxes by cutting the number of tax brackets from seven to three. By simplifying the U.S. tax code, two possible consequences can occur. On the one hand, a simplified tax system can make homes more affordable. On the other hand, this can bring a “trimming” of mortgages interest deduction, property tax deduction and exemptions on capital gains from home sales. These are considered important, especially for the protection of property rights and economic growth.

9.) Higher Demand in the Luxury Market

Star real estate agent James Harris of “Million Dollar Listings Los Angeles” predicts that President-elect Trump may be able to invigorate the luxury market which has seen slower growth lately. Given his profile as a real estate mogul, a property owning president can bring new demand to luxury listings. This may be especially true for properties under the Trump brand. Buyers may hold them with higher esteem, especially since its developer is now the most powerful man in the world.

10.) Continuation of Like-kind Exchanges

Like-kind exchanges allow commercial real estate owners to defer taxes from property sales as long as they can reinvest their earnings in other properties. A possible tax reform may eliminate this, but many property purchases have been made using this system and even President-elect Trump may have benefitted from it. Given that there are no mentioned plans to replace it, like-kind exchanges may continue throughout his administration.

While many of these predictions forecast friendly policies towards real estate market players, experts and analysts are also cautious with regards to foreign trade. With President-elect Trump’s protectionist policies, organizations such as the IMF and the Organization for Economic Cooperation and Development warned that these can cause a decrease in foreign investment for the U.S.— a potentially huge blow to the country’s commercial real estate sector. Only time will tell on whether these predictions are right and if President Trump’s promise—to “Make America Great Again”—extends to real estate development.