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It’s official – Donald Trump will be not only the 45th President but the 47th President as well. This is only the second time in our nation’s history that someone has won re-election to a second non-consecutive term (the first was Grover Cleveland, the 22nd and 24th President).
Trump won decisively, with 50.7% of the popular vote compared to Kamala’s 47.6% and presumably 312 electoral college votes compared to Kamala’s 226, assuming Nevada and Arizona go the way they are expected to. The electoral map is almost identical to the 2016 results, except that this time Trump picked up Nevada. What’s most interesting to me is that over the last 3 election cycles, Trump earned a higher percentage of the popular vote each time he ran, with 45.9% in 2016, then 46.9% in 2020, and finally 50.7% in 2024.
The Republicans also took control of the Senate, and appear likely to retain control of the House. At the moment, the GOP has picked up 4 seats in the upper chamber of Congress, giving them a durable majority with 53 of the 100 seats. Over in the House, so far the GOP has gained 2 seats, and the majority of the races that have yet to be called are leaning red.
You may be very happy about the outcome of the election, or you may be very upset. Regardless of who you voted for, and regardless of what happens in the real estate market over the next four years, there will still be plenty of opportunity for those who work hard, and take great care of their clients.
No one can predict the future, but I’m going to do my best to read the tea leaves and take a look at how a second Trump term could impact the residential real estate market. I’m not going to get into who I voted for and why, but rather my goal is to take as impartial a look at the data as I can, to help you understand what may be coming down the road. It’s important to note that real estate markets are local. The supply and demand in your area could look very different than how it looks in my market. Each local real estate market is impacted my microeconomic factors, but there are also macroeconomic factors that play a role across the board.
Let’s start by taking a look at how the financial markets reacted. According to the Wall Street Journal:
“Wall Street has rarely been more excited by an election. U.S. stocks’ capitalization rose by $1.62 trillion on Wednesday, their fifth-best one-day showing ever, following Donald Trump’s decisive election victory. The surge highlights the opportunity that investors, bankers and others in finance are hoping to embrace over four years of tax cuts, deregulation and economic expansion. ‘Investors are celebrating,’ said Jack Ablin, chief investment officer at Cresset Capital in Chicago. He was among those buying shares of smaller companies, on the bet that Trump’s policies will rev up the economy.”
Small-cap stocks did particularly well, as did banks and other financial institutions. One key reason is that Trump is widely expected to remove the current head of the Federal Trade Commission, Lina Kahn. Wall Street widely perceives the current Biden-Harris administration as being very unfriendly to mergers and acquisitions, and with new leadership in the FTC, it’s likely that we’ll see more M&A activity in the coming years.
(Source: wsj.com)
As investors shifted capital away from bonds and into stocks, bond prices dropped and yields ticked up. According to Inman:
“Mortgage rates and yields on government bonds climbed sharply Wednesday as investors piled into the stock market and assessed whether Donald Trump’s return to the White House in January will fuel more government borrowing and reignite inflation. Yields on 10-year Treasury notes jumped 19 basis points Wednesday morning, hitting a high of 4.48 percent. The 10-year yield, a barometer for mortgage rates, had closed at 4.29 percent on election day after a successful auction of $42 billion in notes showed healthy investor demand for government debt. Rates on 30-year fixed-rate mortgages were up nine basis points Wednesday, to 7.13 percent, according to an index compiled by Mortgage News Daily.”
(Source: Inman.com)
The overall theme is that investors are optimistic about the tax cuts and deregulation Trump has promised, which they see as highly likely to contribute to economic growth, while simultaneously being a bit nervous about how continued deficit spending and tariffs could create additional inflationary pressures.
Shares of Fannie Mae and Freddie Mac soared as investors bet that Trump (and a Republican-controlled Congress) will re-privatize the mortgage GSEs. According to Inman:
“During his first term as president, Trump began the process of ‘recapitalizing’ Fannie and Freddie, which were placed in government conservatorship in 2008 as mortgage delinquencies and foreclosures climbed during the Great Recession of 2007-09. But Democrats derailed the plan to privatize Fannie and Freddie after Trump lost the 2020 election … Preferred shares in Fannie Mae and Freddie Mac, which were delisted in 2010 but still trade over the counter, were up more than 70 percent Wednesday, while prices for Fannie and Freddie common stock climbed by nearly 40 percent.”
(Source: Inman.com)
According to Investopedia:
“In 2007, Fannie Mae and Freddie Mac began to take on massive losses on their retained portfolios, especially on their Alt-A and subprime investments. In 2008, the sheer size of their retained portfolios and mortgage guarantees led the FHFA (and everyone else in the market) to conclude that they would soon be insolvent. On March 19 of that year, federal regulators allowed the two firms to take on another $200 billion in debt, hoping to stabilize them and the wider economy. However, by Sept. 6, 2008, it was clear that the market believed the firms were in financial trouble, and the FHFA put the companies into conservatorship. They received $190 billion in bailout funding, which was paid back by 2014. Nevertheless, they remain in conservatorship under the FHFA. Under the conservatorship agreements established during the 2008-09 financial crisis, Fannie and Freddie were required to send most of their profits to the Treasury as repayment for being bailed out, preventing them from rebuilding their capital reserves. In 2019, however, new rules were enacted that permit Fannie Mae and Freddie Mac to keep a combined $45 billion in earnings. (This was later increased.) This was seen as an initial step in a broader effort to reform the housing finance system, including ending the government’s control over these entities. Through Dec. 31, 2019, Fannie Mae and Freddie Mac had repaid the Treasury a total of $301 billion in dividends during their conservatorship. Since then, each has been building its capital reserves. In mid-February 2024, Fannie Mae reported that its 2023 year-end net worth was $77.7 billion … Freddie Mac, for its part, reported its net worth at $47.7 billion.”
(Source: Investopedia.com)
While both Fannie and Freddie have made progress, they’re still not capitalized enough to withstand the liquidity crunch that would be caused by another financial crisis. According to Inman:
“Fannie and Freddie’s federal regulator, the Federal Housing Finance Agency, has estimated the mortgage giants would need a combined minimum of $319 billion in adjusted total capital to weather another big downturn. Fannie and Freddie’s capital positions, ‘are improved from 2008, but are not robust enough to prevent a Treasury draw in the event of a large loss,’ according to their annual report to Congress in June.”
(Source: Inman.com)
Now let’s take a look at some of Trump’s policy proposals, starting with deregulation. According to Realtor.com:
“Trump has called for slashing regulations and permit requirements that homebuilders say add unnecessary costs to new homes. ‘We will eliminate regulations that drive up housing costs with the goal of cutting the cost of a new home in half. We think we can do that. The regulations alone cost 30%. Regulation costs 30% of a new home,’ Trump claimed in a September speech at the Economic Club of New York. However, those figures appear to be dramatically overblown. The National Association of Home Builders, a longstanding industry critic of regulations, estimates that site work and related permit fees account for 7.4% of the average new-home cost.”
(Source: Realtor.com)
Reducing the regulatory burden on homebuilders would help reduce the cost of bringing new inventory to market, however, the impact likely would not be anywhere near as high as what Trump has claimed – And it’s also worth noting that the vast majority of regulations that actually affect builders are local regulations (at the City or County level) and not federal regulations.
Reducing federal regulations could be a great thing overall for the U.S. economy, as overregulation makes it more difficult for new businesses to get off the ground and for existing businesses to thrive. Larger, more entrenched companies with more resources can benefit from regulatory burdens because it increases the barrier to entry and makes it more difficult for newer, smaller companies to compete with them. Cutting regulations could unleash entrepreneurs and bring about a wave of economic expansion, however, the administration would need to be strategic about which regulations to cut in order to avoid unintended negative consequences – After all, regulations exist for a reason. The proper amount of regulation is certainly above zero, but probably somewhere below the current level. Finding the right balance could be tricky.
One of Trump’s proposals to address the housing shortage is to sell Federal land to developers, provided that at least a certain percentage of the homes built meet the criteria for being considered “affordable” – This typically means the housing payments don’t exceed 30% of the household’s gross income. This is an interesting proposal, and I appreciate that it addresses the supply side of the equation that has been the primary driver of the affordability problem. While the Federal government does hold about 28% of the land, the vast majority of that is in the Western portion of the country and much of it is not really useable.
(Source: usgs.gov)
According to Politico:
“Some 63 percent of Utah’s land is federally owned, as are vast tracts of California (45 percent) and Nevada (80 percent) … ‘There is an enormous amount of federal land out there that is sitting empty or completely unutilized, and you could build a lot of affordable housing there if you’re smart about it,” said David Dworkin, president and CEO of the National Housing Conference, a coalition of housing groups. But ‘you need to actually understand how markets work and work with for-profit developers and recognize that you’re competing against all the other land and opportunity out there,’ he cautioned. ‘You have to make it worth it to housing developers who are making decisions based on data.’ Lots of federal land is unsuitable for residential construction. And the places where the government owns the most land, particularly in the West, are not always near areas with the biggest housing needs, or often lack even basic infrastructure like roads or sewers … The ‘topography of the land’ is also important, according to Jim Tobin, president and CEO of the National Association of Home Builders: ‘How much earth-moving is it going to take?’ … ‘On its face, it’s a good idea,’ he said, but the housing shortage is too broad and deep an issue for it to be a panacea. ‘The supply crisis is not confined to cities with older commercial buildings or a few hundred acres in the desert of southern California,’ Tobin said.”
(Source: Politico.com)
Both Trump and Harris had floated the idea of freeing up federal land to help address the housing shortage, and while it could make an impact in very specific markets in certain parts of the country, it is far from a cure-all.
Trump has repeatedly claimed that the spike in illegal immigration under the Biden-Harris administration is largely responsible for the surge in housing costs. According to Harvard University’s Joint Center for Housing Studies:
“The recent surge in immigration has sparked a policy conversation about the role of immigrants in the housing market, particularly when it comes to housing costs. This has taken on a particular urgency in the context of the ongoing affordability crisis, in which half of renters are cost burdened and many people are getting priced out of homeownership. The timing of the recent surge in immigration, however, does not line up with the high growth in both rents and home prices that happened at the start of the pandemic. Immigrants play a role in household growth, sometimes to a substantial degree, but housing demand during the pandemic has been primarily shaped by native-born household growth in a time of constrained housing supply … For example, foreign-born householders accounted for 50 percent of household growth from 2010–2015 amid weak native-born household formation after the Great Recession … As native-born household formation increased leading up to the pandemic, foreign-born households accounted for 23 percent of household growth from 2015–2019 … When rents and home prices spiked after the onset of the pandemic, immigrants were still not driving household growth. Foreign-born householders accounted for 25 percent of household growth from 2019–2023 amid particularly strong native-born household growth. As a result, 16 percent of all households (21 million) were headed by an immigrant in 2023. It should be noted that these numbers from the ACS include both documented and undocumented immigrants.“
(Source: jchs.Hardard.edu)
The rate of home price growth jumped in 2020 and then jumped again in 2021, and began easing in 2022. However, the big spike in immigration numbers didn’t start until 2022, and then jumped again in 2023 even as the rate of home price appreciation continued trending downward.
This all goes back to supply and demand – The primary issue driving unaffordability is not that there is too much demand for housing, but that there isn’t enough supply. According to an article published by Fannie Mae in 2022:
“The causes of the housing supply crisis are widely understood. After the Great Recession, new home construction dropped like a stone. Fewer new homes were built in the 10 years ended 2018 than in any decade since the 1960s. By 2019, a good estimate of the shortage of housing units for sale or rent was 3.8 million. The pandemic-induced materials and labor shortage exacerbated the trend, however, as evidenced by the surge in rents and home prices in 2021.”
(Source: FannieMae.com)
While it’s true that both legal and illegal immigration adds additional demand for housing to the equation, it appears that Trump is overstating how significant a variable illegal immigration is to the upward pressure on home prices that we’ve seen in recent years.
If you look back at the market before COVID, inventory levels were slowly rising and the rate of home price appreciation was decelerating. Then, in March of 2020 when the pandemic hit, the Fed responded aggressively by cutting rates and reigniting quantitative easing, which was the primary driver of the spike in home prices. According to The Brookings Institution:
“The Fed cut its target for the federal funds rate, the rate banks pay to borrow from each other overnight, by a total of 1.5 percentage points at its meetings on March 3 and March 15, 2020. These cuts lowered the funds rate to a range of 0% to 0.25%. The federal funds rate is a benchmark for other short-term rates, and also affects longer-term rates, so this move was aimed at supporting spending by lowering the cost of borrowing for households and businesses … The Fed resumed purchasing massive amounts of debt securities, a key tool it employed during the Great Recession. Responding to the acute dysfunction of the Treasury and mortgage-backed securities (MBS) markets after the outbreak of COVID-19, the Fed’s actions initially aimed to restore smooth functioning to these markets, which play a critical role in the flow of credit to the broader economy as benchmarks and sources of liquidity. On March 15, 2020, the Fed shifted the objective of QE to supporting the economy. It said that it would buy at least $500 billion in Treasury securities and $200 billion in government-guaranteed mortgage-backed securities over ‘the coming months.’ On March 23, 2020, it made the purchases open-ended, saying it would buy securities ‘in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions,’ expanding the stated purpose of the bond buying to include bolstering the economy.”
(Source: Brookings.edu)
The average rate for a 30-year fixed-rate mortgage bottomed out in January, 2021 at 2.65% and then surged above 7.00% by October that same year. Over the course of the last couple years, the industry has been grappling with the “lock-in effect” since so many homeowners either purchased or refinanced when rates were at record lows, which kept many would-be buyers on the sidelines since it didn’t make financial sense to move in an environment with much higher rates.
Trump has pledged to implement mass deporations of illegal immigrants, which has caused some to fear that the removal of this low-cost labor force would damage the economy. Specifically when it comes to housing, illegal immigrants make up a disproportionate share of the construciton industry. According to the Center for Immigration Studies:
“The Center’s previous estimate, based on data through 2016, shows that 15 percent, or more than one in seven, construction jobs are held by illegal immigrants — three times their 5 percent share of the overall labor force. There were an estimated 1.1 million illegal immigrants working in construction.”
(Source: cis.org)
Whether you believe that removing illegal immigrants from the labor force is the right or wrong thing to do, the data does suggest that the construction industry would be disproportionately affected by mass deportations relative to other sectors of the economy. Homebuilders would need to make up the labor gap with workers that have legal status, which would increase the cost of labor and put strain on margins, which would put additional upward pressure on prices for new homes. Removing or reducing under-the-table labor from the equation would recalibrate the balance of supply and demand in the labor market, which would put upward pressure on both wages and home prices.
One of the key pieces of legislation from Trump’s first term was the Tax Cuts and Jobs Act of 2017. Many of the provisions in that law are set to automatically expire at the end of next year, but with Republicans taking control of Congress along with the White House, it’s likely that those tax cuts will be extended. However, during the campaign, Trump pledged to implement even deeper tax cuts if re-elected.
Depending on where you look, you’ll find conflicting accounts of how the Trump tax cuts impacted the economy and federal revenue. For example, according to the Center for American Progress:
“If Congress were to permanently extend the expiring provisions, that would significantly increase the projected primary deficit and thus increase the upward pressure on the debt ratio by more than 50 percent … The fiscal gap measures the average amount of primary deficit reduction required to ensure the debt ratio at the end of any specified budget window is no larger than it was at the beginning of that budget window. Using the CBO’s most recent projection, from March 2024, the fiscal gap is 2.1 percent of GDP.* In other words, primary deficits would have to be reduced by an average of 2.1 percentage points of GDP each year over the next 30 years for net debt in 2054 to equal its current level as a percentage of GDP. The fiscal gap can be thought of as the upward pressure on the ratio of debt to GDP. This amount of upward pressure will lead debt net of financial assets to rise 80 percentage points of GDP over the next 30 years. Permanently extending the Trump tax cuts would increase the fiscal gap to 3.3 percent of GDP—a 54 percent increase in the fiscal gap—leading to an additional increase of 36 percentage points of GDP in the debt ratio and pushing debt above 200 percent of GDP.*** In other words, permanently extending the Trump tax cuts would make stabilizing debt as a percentage of GDP 54 percent harder.
(Source: AmericanProgress.org)
This was an article published earlier this year based on an analysis of a report from the Congressional Budget Office titled “Long-Term Budget Outlook Under Alternative Scenarios for the Economy and the Budget.”
Alternatively, according to a joint statement from the House Budget Committee Chairman Jodey Arrington and the Ways and Means Committee Chairman Jason Smith:
“While the Congressional Budget Office provides a valuable service to the Congress, its track record in predicting the economic and fiscal outcome of the 2017 Trump tax cuts is poor to say the least … The truth is, the Trump tax cuts resulted in economic growth that was a full percentage point above CBO’s forecast, and federal revenues far outpaced the agency’s predictions. In fact, under Trump tax policies in 2022, tax revenues reached a record high of nearly $5 trillion, and revenues averaged $205 billion above CBO predictions for the four years following implementation of the law. Beyond what the Trump tax cuts did for economic growth and federal revenues, it provided major benefits to working families. The officially reported poverty level fell to its lowest rate in 50 years and unemployment rates for minorities and those without a college degree hit all-time lows. Real median household income rose by $5,000, and wages went up by nearly 5 percent. Americans earning under $100,000 saw an average tax cut of 16 percent. And while the tax burden on low-income families went down, the top one percent saw their share of federal taxes go up.”
(Source: Budget.House.gov)
The truth is, it can be incredibly hard to predict exactly what tax rates will be optimal for balancing revenue and economic growth, because macroeconomic variables are in a constant state of flux. If you’re familiar with the Laffer Curve, a theory popularized by economist Art Laffer, tax revenue will be exactly $0 at both extreme ends of the spectrum, whether the tax rate is 0% or 100% (because at a 100% tax rate, there is no incentive to produce and earn). The theory asserts that a certain optimal tax rate exists that maximizes revenue, and that taxable income will change in response to changes in tax rates. If tax rates are too low, you can increase tax rates and subsequently collect more revenue, but at a certain point if you continue increasing the tax rate revenues will actually fall due to disincentive and shrinking of the economy. Alternatively, if tax rates are too high, lowering tax rates can actually result in increased tax revenue as the incentive structure changes and reinvestment leads to economic growth which exands the “pie” of taxable income.
The federal deficit grew each year during Trump’s first term (2017, 2018, 2019, and especially in 2020). This is true in both nominal terms and as a percentage of GDP. So even though Trump did preside over a steadily growing economy prior to COVID, he certainly didn’t attempt to reign in government spending and get the federal debt under control.
(Source: Reuters.com)
Let’s shift gears and talk about tariffs. It’s important to note that tariffs are traditionally initiated by Congress, but over time the legislature has delegated some of its tariffing authority to the executive branch, specifically if used to respond to an emergency or a national security concern. Tariffs are essentially a tax paid by the importer of foreign goods, and just like any other tax they create upward pressure on prices as companies pass the increased costs along to consumers.
(Source: CassidyLevy.com)
So, what has Trump said about his tariff plans during a second term? According to Fotrune:
“Trump has proposed a 60% tariff on all Chinese imports and a universal 10% tariff on imports from all countries, a practice unseen since World War II.”
(Source: Fortune.com)
My personal opinion is that tariffs should be used strategically to protect our national security interests. For example, even if we can get a particular product cheaper overseas, it may make sense to produce it here. For example, we are currently highly dependent on Taiwan for high-tech semiconductor chips that are used in a wide variety of electronics – Everything from cars and laptops to F-35 fighter jets and other military equipment. The majority of our pharmaceuticals are imported from other countries. In the event of a significant supply chain disruption, we could find ourselves in a very difficult situation given our dependence on other countries.
If Trump actually imposed the tariffs that he’s floated on the campaign trail, the result could be inflationary and American consumers may see prices go up on a wide variety of things. However, it’s worth noting that Trump did utilize tariffs to some degree during his first term, and inflation stayed right around the Fed’s 2% target the entire four years he was in office. Also, his use of tariffs was incredibly more restrained than what he had proposed before taking office. For example, in January 2016 Trump said he would impose a 45% tariff on all Chinese imports, but that ultimately never became policy during his presidency.
(Source: NYTimes.com)
Let’s take a look at the tariffs that were actually imposed during Trump’s first term in office. According to The Tax Foundation:
“In March 2018, President Trump announced the administration would impose a 25 percent tariff on imported steel and a 10 percent tariff on imported aluminum … Several countries, however, have been excluded from the tariffs … In March 2018, President Trump announced … about $50 billion worth of Chinese products to be subject to a new 25 percent tariff … In September 2018, the Trump administration imposed another round of Section 301 tariffs — 10 percent on $200 billion worth of goods from China … In May 2019, the 10 percent tariffs increased to 25 percent … In December 2019, the administration reached a “Phase One” trade deal with China and agreed to postpone indefinitely the stage 4b tariffs of 15 percent on approximately $160 billion worth of goods that were scheduled to take effect December 15 and to reduce the stage 4a tariffs from 15 percent to 7.5 percent in January 2020”
The Trump administration also imposed tariffs on certain products, like solar panels and washing machines. The Biden administration chose to extend some of the Trump-era tariffs, but let others expire.
(Source: TaxFoundation.org)
In May 2019 Trump announced intentions to enact a 5% tariff across the board on all imports from Mexico. According to his tweet from May 30, 2019:
“On June 10th, the United States will impose a 5% Tariff on all goods coming into our Country from Mexico, until such time as illegal migrants coming through Mexico, and into our Country, STOP. The Tariff will gradually increase until the Illegal Immigration problem is remedied.”
(Source: x.com)
However, just days before the tariff was set to go into effect, Trump announced that he had negotiated a deal with the Mexican government. According to Axios, the Mexican government agreed to deploy 6,000 National Guard troops throughout the country to help stem the flow of illegal migration, and to house migrants seeking asylum in the U.S. (this came to be known as the “Remain In Mexico” policy.
(Source: Axios.com)
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