First, let’s take a look at the numbers. The supply of homes on the market is incredibly lean, according to Realtor.com, which has forced home prices higher. In February, homes sold 5% faster than they did in the same month a year ago, and five days faster than they did in January. The median list price remains at $250,000 – 9% higher than one year ago.
Although demand is higher, interest rates are rising. During the final week of February, the average contract rate for a 30-year fixed mortgage with conforming loan balances below $424,100 sat at 4.3% – still a bargain when compared to historical rates over time, but significantly higher than February 2016, when rates averaged 3.66%.
Against this landscape, experts say that Trump's presidency has already had an effect and will continue to influence real estate markets. Here is a look at five ways in which the president's influence is being felt – for good and for bad.
1. Higher Interest Rates
President Trump has made it clear that he’s not a fan of the Federal Reserve’s decision to keep interest rates low. The Fed has indicated that rates will continue to rise as the economy strengthens. Higher interest rates are great for investors, but for home buyers it means larger mortgage payments, and that will almost certainly slow the growth of the housing market. (For more, read: Can President Donald Trump Impact Mortgage Interest Rates?)
Thanks to a drop in interest rates during the last week of February, mortgage applications rose 5.8%, but that is expected to be short lived, say economists. And although the housing market is full-speed-ahead, the number of mortgage applications is still 45% lower now than it was at this time last year. There’s no doubt that as interest rates rise, mortgage applications fall.
2. Not Enough Workers
The demand for new homes is high, in part, because the nation’s home builders can’t find enough workers. Trump’s crackdown on undocumented immigrants could be making the problem worse. That’s because the construction industry has a large number of undocumented workers, according to Lawrence Yun, chief economist of the National Association of Realtors.
As the border tightens, the problem may only get worse, unless America can quickly train people with these construction skills.
3. Less Immigrant Demand
It may be surprising to learn that a 2013 study estimates that immigrants will account for 32.2% of household growth and 35.7% of growth in homeowners. What happens if the borders tighten and the immigrant population is smaller? Some experts believe that while this is a long-term effect, removing even a portion of this market could have a negative effect on home prices.
4. Freer Market – Higher Demand
If President Trump gets his way, Americans will pay less in taxes. That’s a lofty goal and one that could come in any number of forms. But if it were to happen, that would certainly create higher demand in the housing market. Paying less in taxes means more discretionary income and more money to commit to a mortgage payment.
Although every personal finance guru will beg consumers to save and invest the extra money, the housing market will be a large beneficiary of it.
5. A Rising Stock Market Equals Higher Demand
There’s no doubt that Trump has had a giant-size effect on the stock market, which has experienced more than double-digit percentage gains since the election. Most investors would be happy to see a fraction of that in a given year. Along with a rising stock market comes rising optimism. And that can translate to increased home buying. Whether the stock market is an accurate barometer of economic health has been the subject of a host of financial talk show debates. Either way, consumers may feel (what may turn out to be) a false sense of security while the bull market rages on. What goes up on Wall Street will eventually correct itself, potentially leaving some consumers overextended.
The Bottom Line
Since taking office, President Trump has made a lot of people a lot of money, and the real estate market can count itself as one of the recipients. But experts believe that some of his policies might serve to slow that market over time.
No stock market can keep up this growth pace forever. Whether it is President Trump, Clinton, Bush or anybody else, the Wall Street bull market will eventually come to an end, and solely blaming the person occupying the White House wouldn’t be fair or accurate.
By Tim Parker, Investopedia
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