Trump Presidency Will Certainly Bring Changes to Housing Market

John Jordan | November 2016

WASHINGTON—While real estate mogul Donald Trump was anything but predictable during his campaign for the White House, his upset victory over former Secretary of State Hillary Clinton will no doubt bring changes to the financial and housing markets in both the short and long-term.

Although some of President-elect Trump’s policies are still unclear, real estate analysts agree that while unpredictability will no doubt continue to be a hallmark of his day-to-day operations, he will also come out swinging in the early days of his administration on a host of reform measures.

National Association of Realtors Chief Economist Lawrence Yun in an article penned for Forbes, said that Trump’s campaign platform was “largely vague” on real estate proposals. Yun and other analysts are certainly expecting Trump and the now GOP-controlled House and Senate to move ahead with reforms to the Dodd-Frank Act,

In fact, on Trump transition team website GreatAgain.gov, the team was highly critical of the Dodd-Frank Act and said that the legislation did not bring the economic growth its proponents had promised. “The Dodd-Frank economy does not work for working people. Bureaucratic red tape and Washington mandates are not the answer,” the transition team stated. “The Financial Services Policy Implementation team will be working to dismantle the Dodd-Frank Act and replace it with new policies to encourage economic growth and job creation.”

NAR’s Yun said that reforms to Dodd-Frank could be both beneficial and harmful to the real estate sector. He noted that with less regulatory burden, small banks could make more loans and boost building activity, which is sorely needed now that many markets are facing low for sale inventories. However, harsher financial regulations on large banks for example, “could again lead us back to the days of cowboy capitalism and consequent exposure to a massive taxpayer bailout,” he stated. Published reports indicate that the GOP is also interested in reforming or doing away with the Consumer Financial Protection Bureau, created by the Dodd-Frank Act.

NAR Senior Vice President of Government Affairs & Chief Lobbyist Jerry Giovaniello agreed that Dodd-Frank is in the crosshairs of the GOP and the Trump Administration. “The bottom line is yes there will definitely be much more of a deregulatory atmosphere in this town (Washington, DC). And that goes for financial reform, Dodd-Frank, the Consumer Financial Protection Bureau, environmental regulations and so-on,” he said in a NAR-webcast.

Another staple of the Trump campaign is to significantly increase infrastructure investment. The transition team stated, “The Trump Administration seeks to invest $550 billion to ensure we can export our goods and move our people faster and safer. We will harness technology and make smarter decisions on how we build and utilize our infrastructure. Our roads, bridges, airports, transit systems and ports will be the envy of the world and enhance the lives of all Americans. We will build the roads, highways, bridges, tunnels, airports, and railways of tomorrow.”

Perhaps most worrisome to Realtors and other real estate practitioners are possible changes to the U.S. tax code and specifically modifications to the Mortgage Interest Deduction. The Trump transition team, while promising tax reform, is short on specifics. The team stated at the GreatAgain.gov website, “Republican efforts to reform the code since 2008 have been blocked in one way or another by a hostile White House and Democrat Congressional leadership. They believe Americans should pay more in taxes, not less. While there is bipartisan recognition on an urgent need to reform the tax code now, there also is a growing consensus that presidential leadership will be required to achieve success. A Trump Administration tax plan can be summarized as lower, simpler, fairer, and pro-growth.”

NAR’s Giovaniello said that the GOP and Democratic platforms were not specific on their policies concerning the MID. He noted that Trump at times has expressed his support for the Mortgage Interest Deduction, but as the real estate executive prepares for his inauguration into office, the industry is not sure what if any changes he might propose for the MID.

A positive for the industry is that Trump certainly knows the tax code and has used it to his advantage in the past, Giovaniello noted.

Commercial real estate professionals are also worried about possible reforms that could include changes or the elimination of the like-kind exchange tax deferral (1031-like-kind exchanges) that Yun stated, “could easily be on the chopping block.”

NAR’s Yun as well as other analysts believe change is also coming for GSEs Fannie Mae and Freddie Mac. While the NAR Chief Economist noted the failures of both lenders in the past, he warned that dismantling of the two agencies could have significant consequences.

“If Washington’s instinct is to eliminate Fannie and Freddie because of their past sins from past managers, then mortgages will be much more expensive with 30-year fixed rate products disappearing from the market place,” Yun stated. “Consider: mortgage lending on commercial real estate collapsed by over 90% a few years ago during the financial market crisis because there are no government guarantees for this product. Imagine what the housing market would be like if there was an equivalent crash of 90% reduction in home buying. We should view supporting Fannie and Freddie in the same way as we view supporting FDIC deposit government guarantee at banks—to help smooth the financial market.”

The NAR economist stated that the new administration’s policies might lead to a less stringent lending environment. “An important reason for overly-conservative lending is due to the exposure of random lawsuits by the government on lending institutions in recent years, Yun stated in his article in Forbes. “To the degree that the Trump Administration makes it very clear as to what is and what is not an infraction then more mortgages will be provided to consumers. Should the Trump Administration create an environment of ‘we will sue you’ then the lending institutions will retrench and shut off mortgage access to many consumers.”

Giovaniello noted that another area that should be of concern to Realtors and consumers is flood insurance. He noted that the National Flood Insurance Program is currently $24 billion in debt and will likely be the target of reform. NAR’s Yun stated, “The government instinct could be to reduce government’s role and have homeowners pay more. All risks should no doubt be properly priced. But the current flood map for federal insurance coverage is totally outdated and not useful. Rather than lessen the coverage on federal insurance more efforts should be made on updating the maps so a better risk assessment can be made.”

Yun also predicts that Trump Administration policies will cause at least a short-term economic stimulus due to sharp increases in infrastructure and defense spending. He also believes that the trade deficit will go higher and that the stock market will have “gyrations” as investors look favorably on government regulation reform, but bristle over attempts to change international trade deals.

The transition team stated that the administration would move forward on a 10-point immigration reform plan to “restore integrity to our immigration system, protect our communities, and put America first.” The plan continues to advocate for the construction of a wall on the U.S. southern border as well as a host of other immigration reforms including “zero tolerance for criminal aliens.”

 

John Jordan
Editor, Real Estate In-Depth