Housing & Infrastructure Policy
Overall Trump has said little in regards to housing, though he has been a large proponent of infrastructure improvement. Specifically, Trump has said he would create an infrastructure fund that would sell bonds to investors to finance $1 trillion in improvements. As a native New Yorker, and with most of his core assets in New York, the region can expect a good portion of the infrastructure allocations to be directed to NY based projects (e.g. LaGuardia airport)
Impact of International Trade Stance
The possibility of pulling out or renegotiating trade deals and imposing import tariffs could have negative effects on international trade and high-end international purchasers in the US (NYC and other primary markets). Trump's Presidency could negatively affect immigration, which will trickle down to housing demand for certain demographics and neighborhoods populated densely by immigrants.
- Using London, post-Brexit, as an indicator of New York City as a market, the London ultra-high end market took a pretty large hit and dipped around 10% before recently coming back to pre-Brexit demand levels.
In May 2016, Zillow consulted a panel of 100 housing experts that said Trump would have a negative impact on home values, though historic home pricing impacts are generally attributed to inventory rather than mortgage interest rates or wage and job growth (where Trump could have an immediate impact) or even political swings, in general.
However, a recent study by the California Association of Realtors found that transitory political events do not drive the housing market, rather real estate fundamentals do. This ties back to inventory and individual market fundamentals. Post-Election market volatility will moderate in the coming months.
Trump has proposed significant tax changes across the board:
- Cutting down to 3 income tax brackets;
- Eliminating estate taxes; and
- Lowering the corporate tax rate from 35% to 15% and eliminating most deductions; however, he proposes to allow businesses to deduct the cost of asset acquisitions immediately.
- The 15% tax rate is a “unified business rate,” which results in S-Corps and partnerships being exposed to the 15% rate.
The nation will face housing finance reform issues ahead of 2018, when Freddie Mac and Fannie Mae are projected to run out of capital. This will require a hard look at housing finance reform regardless of who is President.
We've seen the biggest 3-day spike in rates since 2009, making it more difficult for borrowers and sellers to transact. The average 30-year mortgage rate rose to 3.73 percent last Wednesday from 3.69 percent the prior week. If borrowing costs remain high, this would further hinder first-time purchases as rising values continue pricing out buyers in many markets
In the near term rates will have the most impact on sales, as the 30 year has fluctuated nearly an eight of a point from lows in October. This should have an impact on pricing, though more stringent lending requirements and higher costs may price buyers out of markets that were previously attainable.
As we look to geographic impact, the blue states (and cities) will likely feel the biggest hit in buyer/seller confidence and pricing. We may see reduced foreign investment capital coming into the high-end luxury housing markets due to immigration policies and trade reform. Red states, on the other hand, should see a surge in confidence in the housing market - investors may become bullish on the sunbelt and bible-belt.
While there is currently a lot of uncertainty (in the markets and politically) we should start to see things stabilize in a few months as a plan is laid out. Ultimately, investors have short term memories and supply and demand, along with real estate fundamentals, location of infrastructure projects, and regulations surrounding lending will have the greatest impact on housing prices.