How President Trump will redefine the real estate investment market
The U.S. real estate market is in a state of flux as 2017 opens for business.
Higher interest rates, thanks to the Federal Reserve's recent rate hike, have shaken the mortgage markets in the last few weeks, with 30-year mortgage rates creeping up on 4.5 percent in many markets. That should have prospective homebuyers looking to lock in lower mortgage rates before they go higher, as the Federal Reserve promises they will in 2017.
Uncertainty also abounds about a new political regime coming to Washington, although most real estate industry insiders believe that President-elect Donald Trump, a longtime real estate mogul, will likely be a friend to the industry over the next few years.
On the other side of the coin, Trump brings a high degree of uncertainty to the Oval Office and to the real estate market – simply because there's really nobody like him who's ever won the presidency.
Look for some tax structure changes. "The Trump factor is an interesting question, which may factually be difficult to answer in this early stage," says Allan Glass, founder of ASG Real Estate in Los Angeles. "However, most real estate experts have a sense that Mr. Trump's presidency will result in fewer business regulations, which would ultimately allow lenders to be more liberal with underwriting standards, and allow more nontraditional lenders to enter the residential lending markets. Trump's policies would also likely lead to advantageous tax structure changes that could prompt holding companies to sell investment real estate."
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Home prices should go up. "Home prices will rise, and at a significant pace," says Jim Jacobs, a partner at Focus Insite near Philadelphia. He adds that employment will be a major key to that drive to growth in the real estate sector. "Whenever we are looking at future developments, the No. 1 is jobs. Donald Trump wanting to 'make America great again' and 'buy American, hire American' means more jobs in key areas and a steady increase in real estate values."
In the short term with the Federal Reserve raising interest rates, Jacobs expects a "little less" activity in the housing markets. "However, the real reason you buy real estate is appreciation, and right now the juice has been squeezed out of the orange," he says. "But Donald Trump's job initiatives should create diverse employment and lead to higher property values across the board, in my opinion."
Industry-friendly policies. The Trump presidency will flat-out improve the real estate market, says Nathan Miller, president of Rentec Direct, a real estate software company based in Grants Pass, Oregon. "The reasoning is pretty simple: Trump is a real estate guy and his mentors, policies and cabinet are going lean in the direction of real estate investments. Real estate is a market Trump knows well, so whether it's a conscious decision or not, his moves in the White House will improve the real estate market."
As an example, Miller cites Trump's plan to increase tariffs on imported goods, which will divert funding and investment to local resources. "There's nothing more American than American lumber building American homes on American soil," he says.
Dodd-Frank may see some changes. "If Trump is successful with deregulation, specifically around the Dodd-Frank Act, it will ease up the flow of capital available from banks, which will be good for commercial real estate," says Jilliene Helman, CEO of RealtyMogul.com, a commercial real estate online marketplace. "The Federal Reserve has already indicated they will continue to raise rates in 2017, and traders are pricing in two or three additional rate hikes. This will negatively impact commercial real estate as capitalization rates will move, but some of this has already been priced into the market."
Also, if Trump is successful in creating domestic jobs or bringing jobs that have moved to foreign markets back to the U.S., this will be good for the economy and good for commercial real estate, Helman says.
Once a developer, always a developer. "Having Trump in office is the closest that the New York City real estate will come to having one of its own at the helm," says Aleksandra Scepanovic, managing director of Ideal Properties Group, an independent real estate firms in New York. "If anyone understands the dynamic of this very marketplace, it's Donald Trump. Once a developer, always a developer. While you can't assume how pro-new construction Trump could remain in the years ahead, Trump is sure to be sympathetic to real estate and the builders' please, if he expects to fix and rebuild highways, schools, hospitals, tunnels, bridges."
Copyright 2016 U.S. News & World Report