With Trump’s first work day today, what does the new Trump presidency mean for real estate? Is Trump the “inflation president”? What does this mean for rates and real estate values? Will commercial and residential real estate continue to soar? Are certain markets and price points more prone to shocks than others? Will a flight to quality assets outweigh the risks? I’ve compiled various expert sources from a wide variety of sources to highlight the true impacts of a Trump presidency. I have spent countless hours deciphering what this truly means for our industry. Below are the highlights along with some great articles that are a must read.
Real Estate Impact from Trumponomics: With the first day of work today for Trump, the effect on residential and commercial real estate is just beginning. There are a number of factors playing out. First interest rates appear to be trending upwards. Along with interest rates is domestic and global uncertainty.
- Interest rates: Treasuries have been decreasing rapidly (remember rates move in inverse to treasuries). As rates trend up, the return on real estate decreases. This means borrowers can afford less house as the payments are a higher portion of a borrowers income. On the commercial side as well, higher rates decreases the overall return on a real estate investment. Rising rates are not good for real estate. On Bloomberg , the head of Pimco warned that “should Trump’s policies prove inflationary, there may be a need for more rate rises over the medium term than previously forecast.” Further it has been noted that Trump will be the inflation president (see article). A substantial run up in rates could rapidly derail the housing market as buyers can no longer afford the higher payments.
- Market instability. There are several conflicting views on what a Trump win means on market confidence along with consumer confidence. It is very hard to measure how people “feel about” the presidency. I assume that based on the results half of folks are likely happy and “feel” confident while the other half not so much. It is easiest to look at this two ways, the luxury/high end markets and middle income markets
- High End Markets: These markets will soften. With rising interest rates comes a stronger dollar. A stronger dollar means that foreign investors buying power has substantially decreased. The stronger dollar will no doubt cause many international buyers to hesitate on a purchase in the US as other markets look more attractive due to exchange rates. Along with the stronger dollar, many of the purchasers in these markets have substantial wealth tied to the stock market, international markets, trade agreements, etc… Unfortunately uncertainty is the death knell for high end markets. Furthermore, many international clients will no longer look to the US as a safe haven for hard assets like real estate. In the run-up to the election, Mansion Global surveyed brokers, listing agents and other industry experts around the world and found that a wide majority thought Mrs. Clinton would have been more favorable for luxury real estate markets. Overall, 83% of respondents said Mrs. Clinton was the best person for the luxury real estate industry, while 17% opted for Donald Trump. The experts noted that her experience would offer stability next to Mr. Trump’s “wild card” presidency. With Trumps comments on Latinos, this population is likely not going to be rushing to buy US real estate. A day before the Nov. 8 election, a pair of Latin American legal experts warned a Donald Trump presidency would have a negative impact on South Florida’s real estate market, cautioning that investors from the region would no longer feel welcome in the U.S. (South Florida Real Estate News)
- Middle income markets: This one is interesting and tougher to predict. I think it is going to be a mixed. In higher priced markets interest rates are going to have a larger impact (for example Denver where the median price is over 400k) Here are a couple other thoughts: Ralph McLaughlin, chief economist with Trulia.com, said the Trump effect on housing could be different across the nation. And here is another take on what this means for housing. “The shock of a Trump victory will be both a boon and drag on confidence of American homebuyers,” McLaughlin writes in a statement. “Homebuyers in economically healthy blue states will likely be rattled and more hesitant about the future the U.S. economy, which will curb their interest in making large investments. (Dallas news)
Regardless of which side of the fence you sit on, there is no doubt that the unexpected election of Trump will bring change. The million-dollar question is will a “flight to quality assets” outweigh the rise in rates and international uncertainty. How you adapt your business and finances as a result of the change will be the real story over the next four years.
Resources:
- National Association of Homebuilders: What does a Trump victory mean: http://www.nahb.org/~/media/Sites/NAHB/advocacy/2016-Election-Summary
- Deciphering What trump will really do: Bloomberg: https://www.bloomberg.com/view/articles/2016-11-09/deciphering-trumponomics-chapter-one
- What does a trump presidency really mean: Well’s Fargo economics: http://image.mail1.wf.com/lib/fe8d13727664027a7c/m/1/post-election-20161109.pdf
- Fed Faces an overhaul as Washington braces for a shakeup: Bloomberg: http://www.bloomberg.com/news/articles/2016-11-09/fed-faces-overhaul-as-washington-braces-for-trump-led-shakeup
- What does a trump win mean for real estate: Dallas Daily news: http://www.dallasnews.com/business/real-estate/2016/11/09/real-estate-markets-take-stock-day-election
- What does a Trump presidency mean for high end real estate: Mansion Global: http://www.mansionglobal.com/articles/45393-donald-trump-presidency-may-prove-beneficial-to-luxury-real-estate-market-globally
- Trump is bad news for latin American investors: South Florida real estate news: http://therealdeal.com/miami/2016/11/08/trump-is-bad-news-for-miamis-latin-american-investors-experts-say/
- Markets are betting Trump will the inflation president: Bloomberg: http://www.bloomberg.com/news/articles/2016-11-09/investors-are-betting-that-trump-will-be-the-inflation-president
Written by Glen Weinberg, COO/ VP Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in the Colorado Real Estate Journal, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
Fairview is a hard money lender specializing in private money loans / non-bank real estate loans in Georgia, Colorado, Illinois, and Florida. They are recognized in the industry as the leader in hard money lending with no upfront fees or any other games. Learn more about Hard Money Lending through our free Hard Money Guide. To get started on a loan all they need is their simple one page application (no upfront fees or other games).