Donald Trump’s victory in the 2016 U.S. presidential election sparked a multitude of shifts in various sectors of the economy. The housing market, a crucial area for many American families and investors, is especially sensitive to changes in political leadership. Trump's policies, both during his first term and proposals for a potential second, could have lasting consequences on the housing market. From fiscal decisions that impact mortgage rates to immigration policies that affect labor in construction, Trump’s economic and regulatory strategies could reshape the way Americans buy homes and the housing market functions overall.
Rising Mortgage Rates: A Consequence of Fiscal Policy
One of the most immediate effects of Donald Trump's fiscal policies is the potential for rising mortgage rates. A notable early reaction to Trump’s election in 2016 was the surge in U.S. Treasury yields, which directly influence interest rates on long-term loans, including mortgages. For example, after the 2016 election, the 10-year Treasury yield shot up to 4.479% by mid-November. This was accompanied by an increase in the average 30-year fixed mortgage rate, which reached 7.13% shortly after the results of the election.
As of 2024, Trump’s proposed budget could continue to impact the financial landscape, especially with his plan to increase government spending. According to the Committee for a Responsible Federal Budget, Trump’s proposed budget could add as much as $7.75 trillion to the national deficit. The increased deficit could potentially lead to higher inflation, which in turn would push mortgage rates even higher. Higher inflation generally leads to tighter monetary policies from the Federal Reserve, which increases borrowing costs. As a result, mortgage rates would rise, making it even more difficult for prospective homebuyers to afford homes, particularly first-time buyers who are already facing challenges with affordability.
Lisa Sturtevant, the Chief Economist at Bright MLS, predicts that under Trump’s economic policies, the housing market will face more volatility. “Trump’s fiscal policies can be expected to lead to rising and more unpredictable mortgage rates through the end of this year and into 2025,” she notes. These unpredictable rates make it harder for families to plan long-term, potentially leading to fewer people entering the housing market.
Impact on Housing Affordability and Inventory
As mortgage rates increase, housing affordability will become even more strained. For many would-be homebuyers, the rising cost of borrowing could lock them out of the market, especially in the face of high home prices and limited housing inventory. Trump’s presidency is likely to exacerbate these issues.
Dr. Selma Hepp, Chief Economist at CoreLogic, points to a number of policy proposals that could make it even harder for average Americans to buy a home. One of the most significant impacts of Trump’s policies is the effect they could have on the construction industry. The potential mass deportation of undocumented immigrants, as proposed by Trump, would shrink an already constrained labor force. Construction companies, which rely heavily on immigrant labor, could face labor shortages that stall new housing development. This reduction in the construction workforce could further limit the supply of new homes, which in turn would continue to drive up prices. This problem is compounded by Trump’s proposed tariffs on imported goods, which could increase the cost of materials, further elevating construction expenses.
With limited housing supply and increasing costs of new builds, the housing market would likely see high home prices persist. First-time homebuyers, already struggling with affordability issues, would be sidelined. The result could be a market where fewer new buyers are able to enter, while existing homeowners, particularly those with favorable mortgage rates, may choose to stay put rather than risk paying higher rates on a new home.
Potential Deregulation: A Double-Edged Sword for Housing
While some of Trump’s policies are expected to increase costs and constrain supply, others could theoretically provide relief, especially if the administration pursues deregulation in the housing industry. Dr. Hepp suggests that Trump may consider re-zoning federal lands to build homes, which could provide a much-needed boost for first-time buyers looking for affordable options.
Deregulation could also help by easing some of the stringent building codes or land use restrictions that have made housing development more expensive and difficult in many areas. If Trump were to push for loosening some of the regulatory constraints on housing development, it could open up more opportunities for developers to build new homes. However, these benefits might not be realized immediately, particularly if rising mortgage rates continue to suppress buyer demand.
That being said, high mortgage rates and affordability issues would continue to be significant challenges for buyers, and it is difficult to predict which of these policy changes, if any, will provide meaningful relief to homebuyers in the near future. The long-term effects of such policies may not be immediately apparent, and as a result, it’s unclear whether they will substantially alter the housing market’s trajectory.
Market Reaction and Predictions for 2025
The broader housing market reaction to Trump’s policies is complex and multifaceted. According to Anthony Lamacchia, CEO of Lamacchia Realty, the immediate aftermath of Trump’s re-election (should it occur) might result in a temporary suppression of market activity. Political uncertainty tends to have a chilling effect on both buyers and sellers, with many individuals hesitant to make major financial decisions amidst fluctuating market conditions. Lamacchia anticipates that this lull will likely be short-lived, however, and expects market activity to rebound by January 2025, assuming the broader economic landscape stabilizes.
For those in the real estate industry, the fluctuating nature of mortgage rates could have a significant impact on how buyers and sellers approach the market. Many potential buyers may delay purchases, awaiting more favorable conditions, while others may be forced to scale back their home-buying ambitions as mortgage rates continue to rise.
Advocacy and Collaboration: The Role of Housing Associations
The Mortgage Bankers Association (MBA) and the Community Home Lenders of America (CHLA) have expressed their intention to collaborate with the Trump administration to influence housing policy. Both organizations are committed to advocating for changes that could improve housing affordability and accessibility. For example, the CHLA has made it a priority to reduce costs for service providers, which could lead to lower costs for borrowers and make it easier for people to access mortgage financing.
Robert Broeksmit, President and CEO of the MBA, has called for the creation of a national housing director to coordinate housing policies at the federal level. Additionally, Broeksmit has recommended streamlining federal housing policies to make the home-buying process more efficient and affordable. The collaboration between these industry groups and Trump’s administration could potentially lead to reforms that make it easier for Americans to buy homes.
Conclusion: Uncertain but Formative
The impact of Donald Trump’s policies on the housing market is still uncertain, and it is difficult to predict the exact long-term effects. On one hand, policies such as deregulation and re-zoning could help address housing supply issues, particularly for first-time buyers. On the other hand, rising mortgage rates, labor shortages in construction, and tariffs on building materials could increase the cost of housing and make it even more difficult for many people to afford a home.
As with many aspects of Trump’s presidency, the housing market will likely experience both challenges and opportunities. The full effects will only become clear over time as these policies unfold and as the housing market responds to the changing economic environment. What is certain is that the housing market, like many other sectors of the economy, will be deeply affected by Trump’s policies, and potential buyers, sellers, and real estate professionals will need to stay agile as the situation develops.
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