Shares of Banks soared today as real estate took a little breather.  What does a trump presidency mean for the markets and mortgage/real estate professionals?  Is Trump the “inflation president”? What does this mean for rates and real estate values?  Let’s start with banking.  Is the surge in banking stocks good news for borrowers or even banks?  How about Glass-Steagall?  On the real estate side are certain markets more prone to shocks than others?  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 to enable each of you to make the best decisions in this changing environment.  Below are the highlights of some large immediate impacts along with some great articles that are a must read.

Banking:  Banks as a whole are breathing a sigh of relief.  They feel a Trump victory will allow a loosening (or elimination) of many regulations including Dodd Frank.  Unfortunately, as a bank I wouldn’t be dancing at the victory party yet, there is always the asterisk!  There is always another side to a coin.

• According to a press release by Trump in July, he favored breaking up the largest banks (implementing the Glass Steagall act) which would separate investment banking from banking activities (cnbc)
• Treasuries fell today which means the markets are anticipating higher spending (and less revenue) from the new president. The fall in treasuries correlates to a rise in rates for borrowers and on the flip side increases the profitability of banks as they make more return on their money
• The Federal Reserve Faces an overhaul as Washington braces for a trump led shakeup: A trump presidency could radically change the mission and make up of the federal reserve.  It is clear the republicans want to radically reduce the autonomy of the federal reserve. (Bloomberg).  On the surface this is a dangerous precedent since the fed historically has been an independent body with a mission to help stabilize the economy during times of distress.  The Fed is supposed to have wide latitude to utilize various tools to prevent a meltdown of the financial system.  Whether you agree or disagree with how the fed handled the last crisis, I do believe that softened the blow from the financial meltdown.  If they were merely a puppet of the president or legislative branch they likely would not have been able to react either efficiently or effectively to control a crisis (think about how long congress has been talking about tax reform and the mundane debates about nothing producing no results).  This is a big area to watch
• Consumer Financial Protection Bureau: Look to see this greatly scaled back as the president appoints a new director

Real Estate:  The effect on residential and commercial real estate is yet to be determined.  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: 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 this morning: “After initially falling to below 50 percent, the market-implied odds of a hike are back over 80 percent this morning, with Pimco warning 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)
• Market instability. There are a number of 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. 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.  Here are a couple 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.  How you adapt your business and finance as a result of the change or to manage the change will be the real story over the next four years.

Resources:

1. Deciphering What trump will really do: Bloomberg: https://www.bloomberg.com/view/articles/2016-11-09/deciphering-trumponomics-chapter-one
2. What does a trump presidency really mean: Well’s Fargo economics: http://image.mail1.wf.com/lib/fe8d13727664027a7c/m/1/post-election-20161109.pdf
3. 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
4. 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
5. 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
6. 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/
7. 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).