People who were upset about prices going up too fast, especially house costs, helped put Donald Trump back in the White House. What, though, will a second Trump president mean for people who buy and sell homes?
In the short term, this means higher mortgage rates. However, experts told MarketWatch that in the long term, another Trump administration could mean less government oversight and more tax breaks for everyone.
The chief economist at the Mortgage Bankers Association, a trade group, told MarketWatch, “There’s likely to be two sides of the coin.”
According to Fratantoni, Trump’s policies could lead to more tax breaks and less government oversight, which would be good for home buyers and builders. However, these policies could also cause the federal debt to grow, which would make mortgage rates go up.
In the next few months, here are six important things to keep an eye on:
Mortgage rates going up
Once the election is over, mortgage rates are likely to stay high. On November 6, Mortgage News Daily said that the average rate for a 30-year mortgage was 7.13%.
Fratantoni said, “Overnight, the 10-year Treasury rate went up about 20 basis points. You could reasonably expect that it will play out pretty closely in terms of a rise in mortgage rates.”
Most of the time, mortgage rates go up and down with the 10-year Treasury note TMUBMUSD10Y 4.445%, not with the Federal Reserve’s main interest rate. In the past few weeks, the 10-year Treasury note has gone up a lot in value as people get ready for a Trump win. This has caused the 30-year mortgage rate to go up as well. When buyers think that inflation will go up, Treasury yields usually go up too.
Because Trump is in charge, Fratantoni said, the U.S. economy will grow faster, inflation will rise, and the interest rate will go up.
We expect the instability. The last time Trump was elected was in 2016. According to Danielle Hale, head economist at Realtor.com, mortgage rates also went up at that time.
A company owned by News Corp runs Realtor.com, and MarketWatch is a part of Dow Jones, which is also owned by News Corp.
As shown by Freddie Mac records, the 30-year mortgage rate went up from 2.78% to 2.84% from November 5, 2020, to November 12, 2020. It then went down to 2.72% the following week.
Lisa Sturtevant, chief economist at Bright MLS, said in a statement that the longer-term prospects for people who want to buy a home is not good.
There will likely be more ups and downs in the home market soon, Sturtevant said. Still, she said, it will be harder for first-time and moderate-income home buyers to become homeowners in the long run because his policies favour people with high incomes and current homeowners.
Experts say that Trump’s plans to raise tariffs on foreign goods and crack down on immigration are just two examples of policies that could cause mortgage rates to rise until the end of the year. The government deficit, which has an effect on mortgage rates, is still a problem that needs to be fixed.
According to the Bipartisan Policy Centre, higher federal borrowing costs for the government’s debt in the future could cause mortgage rates for buyers to go up. This is because mortgage rates follow the direction of the return on the 10-year Treasury.
In this way, Sturtevant said, “bond yields are rising because investors think Trump’s proposed fiscal policies will make the federal deficit bigger and roll back progress on inflation.”
Because of this, rates will likely go up, said Lawrence Yun, top economist at the National Association of Realtors and a member of Congress. “Even though the Fed is lowering short-term interest rates, mortgage rates will go up in the short term because the outlook for the budget deficit is not getting better.”
Yun said that the Fed will not make greater interest-rate cuts unless Trump’s actions cause inflationary pressures to ease. This means that mortgage rates will stay high.
According to experts, the one thing that is certain about mortgage rates is that Americans will not be seeing 2% mortgage rates any time soon, even though the president-elect promised during the campaign to bring mortgage rates down to that level.
“You should never say never,” Fratantoni said. “But the conditions that would make mortgage rates that low again are not good.” Mortgage rates can’t be lowered by the president.
“We went through a pandemic to get there, so a big economic crash or something else bad would have to happen for us to enjoy very low mortgage rates,” he said.
Costs of homes going up
Expect home prices to go up because Trump’s plans to put tariffs on foreign goods could make it more expensive to build a house.
The National Association of Home Builders says that Trump put tariffs on Canadian timber that was shipped into the U.S. when he was president, and those tariffs have stayed in place under Biden’s government. The National Association of Home Builders says that this has caused the average price of a brand-new home to rise by about $14,000.
The cost of building a home has also gone up because of things like the lack of affordable developable land, the cost of labour, the cost of building materials other than timber, and the rules and regulations put in place by the government, according to Jim Tobin, CEO of the National Association of Home Builders.
People have been very hard to find in this industry: “We face a 300,000 to 400,000 worker shortage in the construction industry,” Tobin said. He said that home builders still rely on new immigrants to fill many roles, even though the business has tried to get more young people to work there. A report from the NAHB that came out in the spring says that 25% of building workers are immigrants.
Trump’s plans to deport a lot of immigrants could “chill the construction industry,” Sturtevant said, because fewer people would want to work in construction, which would stop the building of homes.
More tax breaks for home builders, which means more homes for sale.
If Trump wins, there will likely be more tax breaks that encourage people to build homes.
In theory, more homes for sale could mean lower prices, but experts told MarketWatch that higher mortgage rates and Trump’s tariffs could make it more expensive to buy a home, cancelling out any price drops.
David Dworkin, president and CEO of the National Housing Conference, a nonprofit advocacy group leaning to the left, said he was hopeful that a second Trump administration could lead to housing tax credits that would help buyers and builders, which would have a big effect on the supply of homes.
Home prices have reached all-time highs this year, in part because there aren’t many homes for sale. This is because there aren’t many new homes on the market.
Dworkin thinks that a new kind of “opportunity zones” will appear. Congress made opportunity zones through Trump’s Tax Cuts and Jobs Act of 2017. These zones let businesses or people invest in low-income places in exchange for tax breaks, like not having to pay capital gains taxes right away. Dworkin says he thinks that opportunity zones have made it easier for affordable homes to be built.
Dworkin said, “There’s a chance to change some of the opportunity zones and how they handle affordable homeownership.”
The low-income housing tax credit in the TCJA was kept in place by Trump during his last term. The LIHTC program, which began in 1986, helps make affordable homes more available in the United States.
Less government oversight in loans and building homes
Experts say that a Trump president will likely mean less government regulation, which could make the housing market more active.
Fratantoni said, “With Trump in the White House, take a lighter touch with regulations, both in the lending and building space.” That will be good for the housing and banking markets in general.
Builders are also excited about Trump’s second term. “President Trump made housing policy and building more homes a central part of his economic platform,” Tobin of NAHB said.
Tobin also said that among the builders he has talked to, “the mood is positive.” “In their minds, the last four years under President Biden were marked by more rules and regulations…” They think that President Trump will cut down on rules, which will encourage people to build homes.
Dworkin agreed and said that the Biden administration’s plan for regulations was very harsh. “As a regulator, you can be a lapdog, a guard dog, or an attack dog,” he said. “We need a guard dog.” “The people have made it clear that they want rules that don’t treat businesses like they’re the enemy.”
Fannie Mae and Freddie Mac might go out on their own.
There will be more talk about putting Fannie Mae and Freddie Mac back on the public markets. These are two government-backed companies that back most U.S. mortgages.
A story in September in the Wall Street Journal said that Trump supporters were working on plans to make the two organisations private. The two businesses that the government backs have been run by the government since 2008, when the financial crisis hit. They buy mortgages, both residential and business, turn them into securities, and then sell them on the secondary market.
It was Trump’s plan to privatise these two housing funding agencies during his first term, but the pandemic stopped him.
“Everyone who is smart will say that Fannie and Freddie were never meant to be in conservatorship for 16 years,” Dworkin said.
But it needs to be done carefully to get them back into the public markets, he said. “It’s not in anyone’s best interest for the housing markets to be messed up, so the real work needs to be done on how to get them out of conservatorship.”
Fratantoni said, “Any threat to the stability and liquidity in the secondary market is the biggest worry of the industry.” He also said that liquidity, or the ease of getting money, is “paramount” so that lenders can give loans to people who want to buy homes.
The 30-year mortgage won’t go away, though, even if Fannie and Freddie go public again. “The 30-year mortgage has been a characteristic of the U.S. housing market since the 1930s,” Fratantoni said. The item is a popular choice among U.S. home buyers and owners, so it will be kept. The question really is about how stable the prices are and how much money is available in the secondary market.
In the end
CEO of Redfin RDFN -2.45% Daryl Fairweather told BourseWatch that for the average home buyer, Trump’s election means nothing changes right away.
“There will still not be enough homes.” When the economy grows, rents and home prices go up too. She said, “The cost of borrowing won’t go down by much.”
“Because Republicans are in charge, affordable housing across the country is not a top priority,” she said. “Thus, things will stay the same.”
Tobin from NAHB was a little less pessimistic about the future for home makers and buyers who can afford homes at the rates and prices they are now.
“I think the economy will do better under Trump.” “People will start to feel better about the economy,” he said, and they’ll be willing to spend more on homes even though mortgage rates are high.
