What does a Trump presidency mean for the U.S. housing market?

If my Facebook feed is any indication, the outcome of this year’s presidential election was an absolute shock to almost everyone paying attention- even to those who voted for The Donald!  Hardly anyone in mainstream media thought there was any chance Donald Trump would walk away with victory over Hillary Clinton after all was said and done.

I voted. It made me feel weird inside.

A quick preface:  The purpose of this post is not to give my opinion of whether or not I think Trump will be a good president.  Additionally, I understand that there are going to be some reading this who have real concerns about some of the implications of a Trump presidency.  I do not mean, at all, to trivialize these fears or concerns.  It’s just…that’s not the purpose of this post.  Lastly, this is not a nuanced or technical economic research paper.  I’m just going to give a few simple and digestible points as I feel led.  OK, onward!

What do we know?

So, what affect will a President Donald Trump have on the U.S. housing market?  In short, (SPOILER ALERT!), I don’t know.  I think we may only know the answer to this question in hindsight.  However, I do think we have some clues.  For instance, here are a few simple facts about Trump that I think are pertinent to this topic:

  • Donald Trump is a (newly reformed) republican.
  • Donald Trump is a businessman.
  • Donald Trump made his billions in- you guessed it- real estate.

Republicans, in general, are in favor of less government intervention in the marketplace.  Democrats, on the other hand, are generally in favor of more regulation.  Check out the 2016 Republican Platform (specifically pages 3-4) for an indication of where the party as a whole stands on the housing market.  Many republicans blame our most recent housing crisis on federal manipulation of interest rates and other interventions.  Therefore, it’s logical to assume Donald Trump will advocate for policies that repeal lots of the regulations on financial markets.  What would the result be?  Well, that depends on who you ask.  Ask a republican and they’ll tell you this might cause a correction in the market and long-term stability.  Ask a democrat and they’ll tell you this will cause more corporate greed and predatory lending, which could cause yet another economic collapse.  Who’s right?  I guess we’ll see!

donald_trump_thumbs_up
Photo courtesy of Wikimedia Commons

Short term

After last Tuesdays election, mortgage interest rates spiked sharply.  “I don’t know that it was specifically Trump…but I’ve seen interest rates rise a full point in the past week.  We were in the low 3%s and now we’re in the low 4%s.” says Randy Atkinson of Movement Mortgage.  This shouldn’t be a huge shock.  After all, mortgage interest rates are tied to demand for mortgaged-back securities (MBSs)- that is, investors.  Of course, there are several other factors but the primary one is MBS demand.

When looking at this past election more broadly, Hillary Clinton represented the “status-quo” candidate.  (I don’t necessarily mean that in the pejorative sense at all.)  I mean, for all intents and purposes, a Clinton administration probably wouldn’t have interacted with the economy in much different a way than the Obama administration.  Investors- even if they disagree with Obama’s approach- know how that game works at this point.  If Hillary had won, investors would have perceived less risk in putting their money in housing-based investments.

On the other hand, Donald Trump represented the “change” candidate.  (Again, I don’t necessarily mean that in a pejorative sense.)  Unlike Clinton, Trump ran his campaign on the idea of a complete overhaul of Washington’s involvement in market affairs and a total deconstruction of what Obama has built over the past eight years.  Investors- even if they agree with this approach- do not know exactly how that game might work.  Therefore, these investors perceive more risk in housing-based investments.

My point is this:  The fact that interest rates spiked immediately following the election is not a sign that the sky is falling or that Trump’s policies are bad for the economy.  I’m not saying his policies will be good for the economy- we can’t know that yet.  But with respect to an interest rate hike;  that’s the way it always would have been.  The same thing happened with financial markets all over the world after Brexit became imminent.  It was merely the prospect of change that leads to short-term volatility in the marketplace.  A week after Brexit and things were virtually “business as usual”.

Long term

Now, let’s consider the possible long-term effects of a Trump Presidency.  On this topic, there are lots of people way smarter than me who have diametrically opposed opinions.  What makes this even more challenging to comment on is the fact that Donald Trump was largely silent on the subject of the housing market on the campaign trail.  So, nobody really knows what his plans are…at least nobody who’s talking!  I do believe, however, that there are two policy changes that are probable during a Trump presidency that could affect the housing market:  1) tax cuts and 2) deregulation of financial markets in general.

Donald Trump has promised to cut taxes.  Many before him have made similar promises without delivering- but he talks the talk nonetheless.  Cutting taxes would, in theory, leave taxpayers with…well…less taxes to pay!  (See my logic there?)  This could allow potential homebuyers to spend that money on a new home.  Americans do have a saving problem.  So, a Trump tax cut could provide a helpful nudge for some of those buyers who need him just a little more cash for the downpayment.

Donald Trump has also promised to either cut or drastically reform regulatory agencies and programs like the CFPB and Dodd-Frank.  There are also proposals to ease restrictions on home builders, which could make building new homes less costly thereby making them more affordable for buyers.  As mentioned above, many republicans view this deregulation as a beacon of hope; many democrats see it as a sign of impending doom and an enabling of predatory lending and corporate thievery.

My two cents…

Who’s right?  I guess we’ll see in four years!  Check back then for an update.  🙂

So, how will Donald Trump’s presidency affect the housing market?  My guess:  Not much.  If history has taught us anything about presidents in the modern era, it’s this:  Most of them, in practice, are a lot more “status-quo” than they claim to be on the campaign trail.  I mean, this is politics after all, right?  Only time will tell if Donald Trump is truly the renegade outsider he has claimed to be.  For those hoping he is the next American savior- I think you might be sorely disappointed.  For those announcing the arrival of the antichrist- I think you might have to wait another four years.

 

Barrett Raven
barrettraven@gmail.com
512.970.2648

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