From floridarealtors.org
Donald Trump, the real estate tycoon, will be the nation’s 45th president.
That’s good news for the housing industry, right? Well, there’s a lot to consider.
Here’s how the Trump presidency may impact housing and homeownership this year.
A ‘responsibly aggressive’ marketplace
A unified call for less government regulation is coming from the Trump camp as well as Republicans in Congress.
On the deregulation radar: the Consumer Financial Protection Bureau and other elements of Dodd-Frank, the Wall Street reform act that President Barack Obama signed into law in 2010.
“Since the elections, there has been much discussion of how expected changes under a Trump administration are likely to reduce the (CFPB’s) impact, particularly in the enforcement arena,” said Rob Chrisman, a senior adviser for the Stratmor Group, a mortgage industry consultancy. “Dodd-Frank will not be eliminated. It will be refined, which is a good thing.”
Jeff Taylor is managing partner of Digital Risk, a mortgage processing company. He also said trimming Dodd-Frank would be good for potential homeowners.
“If Dodd-Frank is streamlined, I think you could have banks be more responsibly aggressive in the marketplace, as far as making mortgages,” he said. “And I think that will open up more product for first-time homebuyers … in the next couple of years.”
Taylor said less stringent regulations on lenders might lower the costs of compliance and allow more small community banks to compete with big banks, “boosting bank profits — all of which are likely to increase credit availability.”
However, critics like Noah Smith, former assistant professor of finance at Stony Brook University, worry deregulation will dial banking risk back up and, perhaps more importantly, put taxpayers back on the hook to bail out the bad actors.
Just as during the housing crisis of 10 years ago, it would be another “race to the bottom,” Smith wrote in a Bloomberg analysis.
But a reduction in federal regulations won’t transform the housing industry, Chrisman said.
“Trump may mean less federal enforcement, but the states will remain aggressive.
Politicians in California, Illinois and New York, primarily Democratic states, have already mentioned a stepped-up regulatory atmosphere,” he said.
What about Fannie Mae and Freddie Mac?
Another item on the Republican agenda is to reduce the government footprint in the mortgage industry. That means moving Fannie Mae and Freddie Mac into the private sector.
The two government-sponsored companies back a majority of mortgages and were bailed out with taxpayer dollars during the housing crash. Fannie and Freddie buy home loans from lenders and then package and sell those loans in large bundles of bonds.
The quarterly profits that Fannie and Freddie earn are funneled to the U.S. Treasury, which has been paid back $60 billion more than it provided in bailout funding to the firms.
Investors in Fannie and Freddie want to see that money move back into the private sector.
In November, Trump’s Treasury secretary nominee, Steven Mnuchin, told Fox Business Network, “We gotta get Fannie and Freddie out of government ownership.”
Taylor said removing that federal guarantee would reduce the global demand for the mortgage-backed securities that the two quasi-government agencies issue. Those bonds are instrumental in freeing up capital for lenders to make more loans.
Homebuilders and a Trump economy
A lack of skilled labor has been one of the biggest constraints to the housing industry for the past couple of years, and Taylor worries the Trump administration may not help in that regard.
“Mr. Trump’s plan to spend money on infrastructure projects around the country could result in more laborers taking those jobs and leaving homebuilders short-handed,” Taylor said. “Also, his immigration stance is likely to keep immigrants out of the country and out of the workforce — a blow to homebuilders who rely on immigrants for many construction jobs.”
Labor shortages also contribute to rising wages for construction workers, which in turn keep new home prices high, he adds.
However, Robert Dietz, chief economist for the National Association of Home Builders, said he expects the Trump administration to take action on some labor rules that could benefit the homebuilding industry.
That will almost certainly include the Obama overtime rule “that would’ve affected a lot of construction site managers,” Dietz said.
That rule, blocked by a federal judge on Nov. 22, aimed to double the maximum income a worker could earn and still be eligible for mandatory overtime pay. The new limit of $47,500 would have given 4.2 million more Americans the opportunity to earn overtime.
Dietz also is looking for a Trump administration to help lower building costs.
“Just under 25 percent of the cost of a newly built home is due to regulatory burdens,” he said. “I think it’s reasonable that the new administration can address a lot of them.”
How Trump might affect home affordability
Mortgage rates have soared since Trump won the election. That’s part of a good news/bad news scenario.
“One could argue that the Trump victory has driven up interest rates due to the fear of future inflation, given his tax and infrastructure build proposals,” Chrisman said.
“This increase in rates certainly negatively impacts homeownership for first-time buyers. Increasing interest rates, however, often signal a strengthening economy, and if that is the case, more first-time borrowers will qualify,” he said.
Taylor also said home affordability could suffer but offers another factor in the equation.
“On the positive side, (higher mortgage rates) could also slow price appreciation, which would help buyers. The housing market has lacked first-time buyers and move-up buyers. Slower price appreciation could benefit move-up buyers who have regained value in their home and want to move up before prices rise again,” he said.
Will mortgage interest deduction be cut?
And then there’s the most sacred cow of all: the mortgage interest deduction. It is frequently mentioned as an important factor in the “buy or rent” conversation.
The Trump administration and Republicans have floated the idea of putting a cap on the amount of allowed interest you could deduct from your tax bill.
An analysis by the Tax Policy Center of the Urban Institute and Brookings Institution said only about one-fifth of households actually use the deduction. And most of those are way above middle-class taxpayers.
“The Tax Policy Center finds that in 2017, Trump’s cap would affect only about 160,000 singles, a tiny fraction of the 89 million single taxpayers, and about 230,000 couples out of 59 million joint filers,” Howard Gleckman, senior fellow with the Tax Policy Center, writes on Forbes.com. “The vast majority of the taxpayers who would face the cap are high-income.”
A positive outlook for the New Year
All in all, the experts we spoke with are optimistic about 2017.
Lenders are using better technology to streamline the mortgage process, and the housing market is “healthy” and “robust,” in their words. “Builders are excited,” Dietz said.
He said reductions in regulatory costs could help homebuilders provide housing to the tightest segment of the market, the entry-level buyer.
“If we do get an administration that’s taking a look at various kinds of regulatory policies — where they’ve grown too large or too expensive — that will certainly be a help [to] the supply side of the market,” Dietz said.
“And I think that’s good news, not just for builders, but it’s good news for renters and prospective homebuyers because adding supply is the way that you address housing affordability issues,” he added.