Friday, December 30, 2016

The Trump Effect: 12 Ways President Trump may affect the real estate and housing markets. (Part 2)

During the recent presidential campaigning season and the election that saw Donald Trump become our next president, there was little talk about the issues that affect real estate, mortgages and housing. But it was only eight ago during the 2008 race when the collapsing housing market was one of the most prevalent topics for candidates, as the nation was in a free fall of home values due to the mortgage market collapse. 

But now that Donald Trump is officially our 45th U.S. president, his influence on U.S. housing and real estate is a point of interest, once again. While some deride his lack of political experience, there is no arguing with the fact that Trump is one of the most prominent real estate moguls in America, and is looking to make some sweeping changes over the next four (or eight) years that could affect homeowners across the country.

In part one of this blog, we brought you the first six ways President Trump may affect the real estate, mortgage, and housing markets. Now, we'll bring you the final six.

7. Early signs point to Trump bolstering consumer confidence.
A lot of where the housing market turns is determined not just by logic and data, but by the fears, hopes, perceptions and emotions of the masses in the form of consumer confidence.

Therefore, it's understandable that when Trump takes office, financial analysts predict a boost to consumer confidence in Red states (Republican, or those that largely voted for Trump). Meanwhile, people in Blue states might hold off on important financial decisions like buying a new house, hiring more workers, buying a new car, etc. Both of these could become self-fulfilling prophecies in their respective areas, but one thing that is universal is that the business-friendly and pro-growth Trump is expected to stimulate the economy, for better or for worse, with consumer confidence following that trend.

8. It could be easier to get a home loan (again).
President Trump is on record that he intends to encourage banks and lenders to loosen their qualifications for lending on mortgage loans, a stance he confirmed during an August speech at the National Association of Home Builders (NAHB).

With relaxed lending standards, banks will give out more mortgage loans to more people, including those with lower credit, incomes, or people who wouldn’t necessarily qualify now, a change that could really help our 50-year low homeownership levels.

All of this may sound a lot like the mortgage environment back before banks became so gun shy after being ravaged by the mortgage crisis, in a period of unprecedented real estate growth. But will Trump’s policies light a fire under the too-conservative banks, boosting our low home ownership rates once again, or create another white-hot real estate market that’s ready to combust? 

9. By clearing the path for more building, Trump should help increase housing supply.
Our current housing market is characterized by two polar opposite factors - strong demand from buyers, but also extremely low levels of new home construction and supply. In fact, a recent study by the Urban Institute revealed that there are more than 400,000 fewer homes being built than are needed, and in some metropolitan areas (Sacramento!) the situation is even more pronounced.

One of President Trump’s priorities will be to reduce regulatory land-use and zoning restrictions on building,  kick-starting new home construction and eventually better balancing buyer demand and housing supply. 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. Twenty-five percent of the cost of a home is due to regulation. I think we should get that down to about 2 percent.”

However, Trump’s power to change these regulations will only go so far since a lot of them are enacted on a state and local level, so we’ll have to see how wide the floodgates open on new construction. 

10. Will Trump’s signature unpredictability keep the Fed from raising rates too quickly? 
The Fed is expected to raise interest rates gradually over the next 18 months, but will Trump's influence keep them from raising them too abruptly? With news of Trump's election – and in the month's since - we've experienced an unprecedented stock market rally. But Trump also brings a lot of uncertainty and perceived volatility, filling up newspaper headlines. It's unclear whether the "Trump Effect" will keep driving investors to the stock market, or back into safe vehicles like mortgage-backed securities because of the safety of the real estate market (just like they did with news of Brexit). Trump’s unpredictability – and the erratic nature of how markets and investors have responded to him – should result in the Fed taking a measured, cautious approach to any rate increases.

11. Will the Trump Effect result in lower mortgage rates?
It’s hard to envision mortgage interest rates getting any lower or even staying at the near-historical lows we've enjoyed the last few years. But, like we mentioned above, uncertainty over Trump’s influence on the economy and his unconventional geopolitical maneuvering might actually prolong this period of low interest rates.

If that’s the case, low-interest rates combined with easier lending standards and more supply could lead to another golden era of real estate. However, as we’ve seen before, it can also create a bubble that causes disaster when it inevitably pops.

12. Shake up the Consumer Financial Protection Bureau.
As we’ve seen with the FHA, Fannie and Freddie, etc. Trump is a staunch adversary of big government agencies, and the Consumer Financial Protection Bureau is no exception. President Trump will surely look to trim the fat from the CFPB, or maybe even do away with it altogether. While the CFPB was created along with the Dodd-Frank Act to protect consumers from predatory lending and financial services, Republicans like Trump believe that the agency’s regulatory quagmire prohibits local and regional banks from actively lending to consumers for home mortgages, small business loans, and the like, ultimately making it harder for Americans to buy homes.

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