In July the U.S. Census Bureau announced that the homeownership rate in this country had hit its lowest level since the government began measuring the stat in 1965. Then candidate Donald Trump jumped on the news with a tweet suggesting the figure proved his most consistent message: the economy is failing you.
In a nation in which homeownership is largely seen as synonymous with the American dream, it’s easy to see why a change candidate would highlight the record low rate. But at the time economists urged Americans–and candidates–to look beyond the eye-popping headline number. It turned out the decline in the rate had not been due to fewer people owning homes, but to more people forming households in rental properties. In other words, the dip may actually be a (good) sign that more young people are striking out on their own. Trump, a billionaire by way of real estate development, should understand this.
Demand: There are numerous ways Trump’s election could shake up Americans’ desire for housing. In the short term consumer confidence could track political party lines, which–probably not coincidentally–may mean a home sales slowdown in economically healthy blue-states and a sales pick up in red-states where growth has been slow. Notes Ralph McLaughlin, chief economist at real estate listing site Trulia: “These geographically polarized effects may help housing markets converge between the Costly Coasts and the Bargain Belt. The net effect on U.S. consumer demand for homes will remain unclear.”
Other Trump priorities could further complicate the picture long term. Trump’s tax plan, for example, would give the most substantial cuts to high earners. Oren Jacobson, an analyst at New Home Star, which works with builders to manage home sales, notes the extra cash should increase upper income spending but it may not lead to greater consumption of housing nationwide since the wealthy tend to live in areas where home prices are already bolstered by scarcity.
If the president-elect’s $550 billion transportation and infrastructure plan creates jobs and boosts wages it should lead to greater housing demand and prices. Meanwhile, Trump’s controversial immigration stance could limit foreign investment in U.S. real estate, as well as the number of people who move here (legally or not), limiting price growth and household formation. This could boost the homeownership rate, since immigrants tend to rent rather than buy, but not for the reasons economists like to see.
Supply: A lack of inventory is widely considered the biggest current drag on the housing market. In an August speech to the National Association of Home Builders, Trump suggested he will encourage builders to build. He called the home building industry one of the most regulated in the country and estimated that 25% of the cost of a home is due to regulation. “I think we should get that down to about 2%,” he said. Further emphasizing his support for the industry, he added: “There is no greater thing you can do. If you can build a home, you can build anything.”
Mortgage rates: Mortgage rates have already begun rising post-election. Investors are responding to new uncertainty by pulling their money out of U.S. Treasury Bonds, which serve as a benchmark for mortgage rates, in favor of Japanese and European bonds. As a result the interest rate on a 30-year fixed mortgage has soared to 4% from as low as 3.34% in the past 12 months, according to MortgageNewsDaily.com. Expect a rocky rate road at least until inauguration day.
Credit availability: The Trump transition team has made it clear they plan to undo many banking regulations put in place following the financial crisis via Dodd-Frank Act. The sweeping law both created the Consumer Financial Protection Bureau and imposed limits on how much money big banks could lend out. “The Dodd-Frank economy does not work for working people,” notes the transition website. “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.” If this dismantling makes it easier for banks to lend to average Americans this could increase the buyer pool and increase home prices. The danger, notes Jacobson, is that regulations are loosened too far and lead to another housing bubble.