19 Dec 3 “Need to Knows” to be Prepared in Real Estate with President Trump
By Micah Maupin. Now that the realityTV election is over, what will happen to the real estate market? With Trump in charge of the White House, there is a ton of speculation as to how this will affect the housing industry. Whether we will see the house market improve or crash won’t be obvious in the short term. Let me break down how much impact an election, or a newly elected president, really has on the housing industry with these 3 “Need to Knows.”
How the Housing Market Reacts During an Election
With 2 candidates having two drastically different sets of policies, businesses and shareholders tend to hit the pause button on making any big financial decisions. This year more than ever, the campaign trail for the election created economic uncertainty which tends to slow the momentum of a recovering American economy.
A movoto.com study of the California real estate market reveals that home prices usually rise 1.5 percent less during an election year than in the year before an election. And in the year following the election, they rise 0.8 percent less than average.
Historically after a new president has been elected, corporations can finally make decision with a 4 year window of anticipated policy. Corporations are like big ships who have trouble making quick turns as the tide changes.
To further support the point that change is slow, Redfin’s chief economist Nela Richardson said. “It will take considerable time for our next commander-in-chief to implement policies that have any impact on housing.”
In having both a Republican President and Congress, changes may come quicker than in administrations past. But it should still take until 2018 before we can gauge the impact of the administration’s policies.
Trump On Interest Rates
The US Government does not control mortgage rates. The federal Reserve (which is not part of the government) can change the Federal Fund Rate, which can have an effect on interest rates. Although there are a slew of different factors that affect interest rates [like home sales, consumer confidence, job reports and the GDP] the movement of the 10-year Treasury bond yield is said to be the best indicator to determine whether mortgage rates will rise or fall. As of November 2016 the bond yield is about 2.625% which is about 1% higher than October 2016.
Rick Sharga, executive vice president of Ten-X, (formerly Auction.com) was quoted as saying, “I don’t believe that there will be any significant changes to interest rates, at least in the near term, since the underlying fundamentals that have led us into a low-interest-rate environment haven’t changed.”
Brett Keppler of TREO Realtors explains his thought regarding Trump’s impact on housing, “With Trump being so focused on turning around the economy as he would a business, I can’t imagine that he will continue to allow the fed funds rate to remain as low as it has and miss out on significant interest income.
Though mortgage rates are not directly tied to the Feds funds rate, the overall view of an “improving economy” will eventually result in a higher 30 year fixed rate. As rates increase, the purchasing power of buyers will decrease, all the while, costing a buyer significantly more interest over the course of the loan.”
Though the administration may raise the Fed Funds rate, impacting the interest rate on bonds, the administration does not have the ability to magically raise interest rates to 7 or 8%.
How Trump can DIRECTLY impact the Housing Market
There are only a handful of actions the administration can do in order to DIRECTLY affect real estate in America. Here are a few ways that the administration can impact housing.
Changes to the Dodd-Frank Act – This act was put in place to protect borrowers and place heavy regulations on financial institutions in order to prevent another recession. However, due to these regulations, borrowers are having an even harder time completing their home loan in a short period of time. CNBC writes,”The home loans being made today are arguably the most pristine in history [due to Dodd-Frank]. New default rates are at record lows. All that, however, comes at a cost to lenders, borrowers and the overall health of the housing market itself. If policies change that relax the stringency of regulations, banks and mortgage companies,it might boost the real estate market by allowing more buyers to be approved for loans, faster.
Changes to Section 8 – Since 1937 Section 8 has become a vital part of millions of lower income Americans. Section 8 is a government program that helps pay for quality housing for low income families. Cutting these funds could disrupt the flow of money from the real estate market, causing many Americans the inability to cover their rental income and even their house payments. Cutting these funds would have a ripple effect on the investment world. Without these subsidies, landlords would have to decrease their rents, causing home values to lower, causing investors to slow their business to compensate. This will ultimately have a negative effect for many years until the investor market naturally balances.
Changes to Homebuyer Grants – HUD awards grants to organizations and groups for a variety of purposes. For real estate, grants provide free money from the government to help Americans, who qualify, to buy homes. If the government increases grants to certain home buyers it should help to increase their buying power even if interest rates begin to increase. Grants like these make homeownership a reality for countless American. I was able to get a client approval for a loan because we secured a grant that covered the down payment.
The future of real estate comes from the past…and the future.
It’s been 8 years since the housing recession hit. Nearly a decade later, I anticipate that these buyers will return to the market and be eligible for a mortgage loan once again.
Let’s also not forget about the new generation of millennials. Most Millennials are waiting to become homeowners. Most are getting to the age where they are ready. Fortune.com writes, “There’s evidence that the millennial generation has been slow to warm to the idea of homeownership, as they are generally delaying decisions like marriage and child rearing. But as this chart shows, overall, Americans are still in the market for new homes.“ This is beginning to change as millennials are entering their 30’s. Having stability at this age gives them more confidence to make the commitment to buying a home.
Micah’s Prophecy for Housing under Trump
I see the market hitting a speed bump in terms of appreciation, but not a roadblock (unless Chris Christie is put in charge over at HUD). The real estate market to date this year has been growing with force. According to Realtor.com midwest home sales have increased 2% while the median home price has increased 5.8%! I feel next year will keep growing, it may slow a bit but it will surely gain more speed as the year goes on. As for Donald Trump and his effect on the real estate market. He has substantial knowledge of the inner workings of this particular economy and I don’t doubt his ability to create policies that will positively impact home ownership in the long term.
If you’re considering buying a property within the next five years, the sooner you’re able to lock in a low rate for the next few decades, the better you will be financially for the long run. Also, if trends continue, buying a home right now would lead to a better purchase price, lower monthly payment and a potential steady increase in appreciation over the next few years, so don’t wait.
If you are unsure about whether you’ll qualify or if “now” is the right time to buy, please contact us so we can work together to make the best decision for you and your family. Don’t want to call? Here is a quick FAQ we put together to help you get started.
Tell us what you think. Is Donald Trump the one who will “Make America Great Again?” or is this the worst thing to happen to America since the real estate bubble in 2008?