Effects of a Potential Second Trump Presidency on the Housing Market

A second Trump presidency could bring significant changes to the housing market. This article explores the potential implications of a second Trump presidency on housing affordability, mortgage rates, and construction.

In the lead-up to the 2024 presidential election, the possibility of a second Trump presidency has become a topic of discussion among economists and real estate experts. Understanding the effects of a second Trump presidency on the housing market is crucial for homebuyers, sellers, and investors.

Potential Second Trump Presidency and the Housing Market

Lower Mortgage Rates and Building Regulations

Donald Trump has stated that he aims to lower mortgage rates and loosen building regulations to make homes more affordable and increase supply. However, the feasibility and impact of these measures are subjects of debate.

Mortgage Rates

Trump has occasionally suggested that he would pressure the Federal Reserve to cut interest rates. Although the Fed operates independently, any perceived interference could have long-term economic repercussions. Trump’s plan to reduce high mortgage rates by boosting domestic energy production to lower inflation is another contentious point. Critics argue that energy prices are volatile and not the primary driver of recent inflation.

Building Regulations

Reducing regulatory barriers to building new housing is another cornerstone of Trump’s proposed policies. The National Association of Home Builders estimates that government-imposed regulations account for about 24% of the cost of building a home. While lowering these barriers could increase housing supply, many regulations are at the local level, making federal influence challenging.

Tariffs and Immigration

Several of Trump’s other stances could impact housing affordability negatively. For instance, his proposed tariff hikes could be inflationary and ultimately push mortgage rates up. Additionally, Trump’s plan to cut back on immigration could slow homebuilding by reducing the labor supply.

Tariff Increases

Trump proposes significant tariff increases on imports, including a 10% tariff on all imports and a 60% tariff on imports from China. These measures are likely to raise inflation by an estimated 1.1 percentage points, necessitating higher interest rates from the Federal Reserve and driving up mortgage rates.

Immigration Policies

Trump’s stance on immigration, particularly reducing crossings at the southern border, could lead to a decrease in residential construction. The labor supply for the construction industry would shrink, limiting housing supply growth and potentially pushing up home prices.

Tax Cuts and Government Regulations

Extending the tax cuts from Trump’s first term and rolling back government regulations could also influence the housing market.

Tax Cuts

The Tax Cuts and Jobs Act (TCJA) of 2017 is set to expire in 2024. Trump is likely to renew these tax cuts, which could reduce the tax benefits of homeownership, especially in high-tax states. On the flip side, the TCJA includes provisions aimed at spurring affordable housing development in economically distressed areas, though the effectiveness of these measures remains under scrutiny.

Government Regulations

Trump’s approach to reducing government intervention could lead to looser mortgage lending standards and increased risk in the mortgage system. His previous attempts to privatize Fannie Mae and Freddie Mac could result in higher mortgage rates if the explicit government guarantee on mortgage-backed securities is removed.

A second Trump presidency could bring mixed effects to the housing market. While some of Trump’s proposals aim to lower costs and increase supply, others might inadvertently lead to higher mortgage rates and reduced housing affordability. Understanding these potential impacts can help stakeholders make informed decisions in the ever-evolving housing market.