In a country so politically polarized that even consumer confidence is now split along partisan lines, it should come as no surprise that President Donald Trump’s impact on the housing market is viewed positively by some real estate professionals and negatively by others.
What is surprising is the degree to which home sales and home prices have surged in response to an administration that has (so far) done little that directly – and positively – affects the market.
This suggests that real estate professionals, investors and consumers are reacting to what the President has said rather than done, as well as their own hopes and fears of what he might do.
This response has also put rates on a roller coaster, first rising to new highs earlier in the year until they’ve recently dropped near their lowest levels in months.
“Greatest Seller’s Market Ever”
Since the election last November, the stock market has enjoyed a dramatic “Trump Bump,” and the housing market has also caught fire.
In March, home sales were nine percent higher than in March 2016, with the typical home going under contract in 49 days compared to 60 days last year – the fastest average sales pace on record.
The median sale price of a home sold jumped by 7.5% over last March to $273,000.
The prevailing view among construction firms and real estate agents is that the billionaire real-estate developer’s pro-business positions will provide a long-term boost to both consumer confidence and the economy in general.
For this reason, they expect homebuyers to continue flooding the market even as mortgage interest rates rise in response to recent moves by the Federal Reserve Bank.
Despite anemic GDP growth during the first quarter of 2017, such confidence may be justified.
Even as home prices climb (they rose 5.7% in February 2017 over February 2016), there is no shortage of buyers, prompting some experts to proclaim this the “strongest seller’s market ever.”
And if the President succeeds in cutting taxes, putting more money in the pocket of the average consumer, it could add even more fuel to the red-hot housing market.
Fewer Houses Up For Sale
The market’s reaction to President Trump is good news for home sellers, builders and real estate agents, but less so for home buyers – especially first-timers seeking affordably priced “starter houses.”
One reason for the seller’s market is that demand for homes is rising while supply is dropping. Compared with March 2016, the number of homes for sale this March dropped by 13 percent.
Some experts worry that unless more housing hits the market to put the brakes on price increases, the combination of low inventory, high prices and fierce competition will drive many buyers out of the game.
The average loan size for existing homes reached a record high in March, reflecting increased prices and the lack of inexpensive starter homes.
However, the average loan application size for newly built houses was unchanged. This may indicate that home builders are trying to contain prices to attract buyers with smaller budgets.
Not everyone in the real estate industry believes Trump will be good for business.
Specifically, some worry that his views and proposals regarding interest rates, immigration and deregulation will have negative consequences over the long haul.
Interest Rates. Early on, Trump indicated that he was not happy with the Federal Reserve Bank’s policy of keeping interest rates low, castigating the bank for “creating a false economy.”
While the Fed’s subsequent decision to raise the prime rate was unrelated to the President’s criticism, the effect was as predictable as the tides – mortgage rates began rising.
Historically speaking, today’s mortgage rates are still a bargain, but they will probably slow the growth of the housing market.
Immigration. One reason for the short supply of homes for sale is the inability of construction firms to find enough workers.
The construction industry employs a large number of undocumented workers, so the labor shortage is likely to worsen if the administration continues to crack down on undocumented immigrants,
In addition to building homes, immigrants (legal and undocumented) account for about 32 percent of household growth and almost 36 percent of the growth in homeownership.
Some industry observers are concerned that deporting (or scaring off) even a small percentage of immigrants could negatively impact the market.
Deregulation. Trump’s desire to weaken the Consumer Financial Protection Bureau (CFPB) and other regulations of the Dodd-Frank Act may encourage the return of the predatory lending practices that infused the mortgage market before the financial crisis, say some critics.
On the other hand, Trump defenders believe that reducing or eliminating the regulations will encourage financial institutions to lend more money to a larger number of homebuyers.
Grading the President
If we compare this President’s first term with a 4-year college degree program, he hasn’t yet completed the first semester, so it’s too early to award a grade (passing or otherwise).
Whether you view Trump favorably or unfavorably, it’s important to note that even the most proactive Presidents can have only a limited impact on the housing market and overall economy.
Because financial and real estate markets are fueled as much by perception and speculation as by facts, one thing is certain: like most past Presidents, Trump will receive more blame for a bust and more credit for a boom than he probably deserves.