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:
1. Trump’s proposed tax cuts will allow more people to spend more on housing
A big part of Trump’s campaign platform was his promise to cut taxes. In fact, the New York City real estate billionaire has pledged to reduce the number of tax brackets from seven to three, saving the average American consumer far more with significantly lower rates of 10%, 20% and 25%. Ostensibly, that would free up income that would help more people qualify for mortgages, take out bigger home loans, and invest more into their real estate spending in general. Experts predict it would also give a big boost to the cooling luxury home market.
However, in the short time since he was elected president, Trump’s plan is being called too expensive by financial analysts, who estimate the cost in lost tax revenues between $6 and 7 trillion. A watered-down version of Trump’s tax plan is being bandied about the House of Representatives that would bump those enticingly low tax rates to 12%, 25% and 33%, respectively. Will this pass? And how soon? One thing is for sure is that we’re all interested in paying less taxes if that’s economically feasible.
2. The property tax advantages of homeownership could be endangered
But before homeowners get too excited about saving more money on their income taxes, President Trump may well be cutting the profound tax advantages of owning a home. It’s expected that the mortgage interest tax deduction for homeowners could be in danger of being eliminated or at least significantly rolled back. Likewise, look for less allowable exemptions on capital gains from the sale of a home. Even commercial real estate investors that have enjoyed the like-kind exchange tax deferral known as a 1031 exchange could go away.
Will eliminating the mortgage interest deduction take away one of the major incentives to home ownership?
3. Fannie and Freddie a thing of the past?
Trump is on record during his presidential campaign as wanting to eliminate Fannie Mae and Freddie Mac, referring to them as “corrupt” and stating that they allow “shareholders and executives to reap huge profits while the taxpayers cover all losses.”
However, while his disapproval with the governmental agencies that secure mortgages was clear, he didn’t disclose to what extent they’ll be dismantled, when, or what he has planned to replace them.
But since the election, he’s said that he would “reach a bargain” on Fannie and Freddie, rhetoric the stock market saw as a positive sign that they would survive Trump’s chopping block, pushing common shares in the two mortgage giants by up to 70% since the election.
Reform would be welcome by many interests on both sides of the aisle. Fannie and Freddie made some highly questionable decisions about buying subprime mortgages and creating an “internal hedge fund” that led to their near-collapse during the mortgage bust almost a decade ago, saved only by a $188 billion US Treasury bailout. But since then, they’ve fully recovered paid back taxpayer investments and have been hugely profitable.
If Trump does knock out Fannie and Freddie, expect the cost of the typical mortgage to jump amid a void in government guarantees.
4. Homeowners in flood zones or natural disasters may be left treading water
Government under President Trump will most likely offer less direct relief to homeowners in flood zones or those who suffer natural disasters. That’s because the federal program that assists homes damaged by earthquakes, wildfires, hurricanes and flooding is operating in a $24 billion deficit. It’s hard to envision Trump writing more blank cheques for that agency, and analysts expect that the burden for funding natural disaster damage will fall squarely on the homeowners. Under a smaller and less regulating government, homeowners may see their bills for flood and property insurance go up, but also there have been calls for insurers to accurately assess risk so the agency will be indemnified, including redrawing the antiquated federal flood maps.
5. Will the Federal Housing Administration survive Trump?
In part of his push to reduce government, strip regulations and get to a leaner, more cost effective version of government, Trump has also pledged to eliminate the Department of Housing and Urban Development, the overseers of the popular FHA home loan program that allows many first-time buyers and consumers with low down payments or below average credit scores to achieve home ownership.
Even if the FHA is just reformed, not cancelled, Republicans will look to stop the FHA from providing taxpayer-guaranteed mortgages to wealthy homebuyers, and FHA insurance premiums are expected to be brought in line. To read a great (but extremely technical) article about what might happen to the FHA under President Trump, visit National Mortgage News here. http://www.nationalmortgagenews.com/news/voices/trump-must-focus-on-housing-reform-starting-with-fha-1090644-1.html
6. Repeal the Dodd-Frank Act
The Dodd-Frank Wall Street Reform Act was passed in 2010 to address the issues that led to the 2008-2009 financial crisis. But Trump is a vocal proponent of repealing the act, citing the burden of far too many regulations within its 2,300 pages of law. That’s not a surprise, considering that the law was originally written primarily by Democrats, and hence named after Senator Chris Dodd and Representative Barney Frank at the time. The Trump team calls the act a failure because under the law, "big banks got bigger while community financial institutions have disappeared at a rate of one per day, and taxpayers remain on the hook for bailing out financial firms deemed 'too big to fail.'
But far more likely than all-out elimination is sweeping reform, reworking the fundamental structure of the Dodd-Frank Act and stripping back some of the thick and complex regulations.
Look for part two of this blog with the remaining six more ways President Trump may affect real estate and housing!