Government

What Donald Trump’s Return to the White House Means for the Housing Market

Published November 6, 2024

Following a highly competitive election, Donald Trump is set to return to the White House for a second term. This outcome comes just four years after he lost his first reelection bid, and it carries significant implications for the housing market.

Trump will officially become the 47th president after securing enough Electoral College votes from key swing states, ensuring his victory. Additionally, the Republican Party has regained a majority in the Senate.

As for the House of Representatives, the results may take several days to finalize since there are still numerous tight races being counted. If Republicans also maintain control of the House, Trump will have considerable freedom to implement his agenda, including various plans he has proposed to make housing more affordable.

In the early hours of his victory announcement in West Palm Beach, FL, Trump described the outcome as “a political victory that our country has never seen before.” He also assured supporters, stating, “We will fight for you and your future.”

“We’re going to make you very happy, we’re going to make you very proud of your vote. America has given us an unprecedented and powerful mandate,” he expressed.

Trump further promised he would not rest until the nation has a strong, safe, and prosperous future, which he believes Americans deserve.

Housing Crisis Context

This election took place amid a severe housing crisis, where around half of renters across the country are considered cost-burdened. Record-high home prices have pushed homeownership beyond the reach of many American families.

On the campaign trail, Trump attributed the escalating home prices to a surge in illegal immigration during the Biden administration. He also suggested that, if elected, he would lower mortgage rates, despite the reality that presidents do not have direct control over such rates.

Proposed Policy Changes

Among Trump's policy proposals is a plan for mass deportation of immigrants. Trump and his running mate JD Vance argue that illegal immigration contributes to the U.S. housing affordability crisis by increasing competition for limited housing options.

Trump claims he will execute “the largest deportation operation in American history,” suggesting that this would reduce demand for housing and subsequently lower prices.

However, evidence concerning immigration's impact on housing costs is mixed. Although higher immigration levels may increase local rents in urban areas, recent surges in home prices began prior to any significant changes in illegal immigration rates.

Senior economist Ralph McLaughlin from Realtor.com® notes that a large-scale immigration crackdown could have adverse effects on the U.S. housing market in both the short and long term. He emphasizes that a reduction in immigration could hurt the labor supply essential for new home construction, as a considerable portion of residential construction jobs are held by foreign-born workers.

LendingTree’s senior economist Jacob Channel agrees, stating that mass deportations will not resolve the core issues of the housing market. He warns that while reducing the number of immigrants may slightly open up housing availability, the broader economic fallout would be catastrophic.

Regulatory Changes

Trump has also pledged to reduce regulations and permit requirements that, according to homebuilders, unnecessarily inflate the costs of new homes. At the Economic Club of New York, he claimed, “We will eliminate regulations that drive up housing costs with the goal of cutting the cost of a new home in half.”

However, many believe Trump's estimates are exaggerated. The National Association of Home Builders (NAHB) indicates that site work and permit fees only contribute around 7.4% to the cost of an average new home. Many economists agree that while reducing regulations may help increase home construction, achieving the drastic price reductions Trump envisions may be unrealistic.

NAHB Chairman Carl Harris congratulated Trump on his election win, citing voter concerns about housing availability and affordability as pivotal in their decisions. He emphasized the need for action to address the nation’s housing shortage.

Trump’s plan includes opening federal lands for large-scale housing development, proposing zones with reduced taxes and regulations to stimulate homebuilding. This notion has some bipartisan support, as both Trump and Biden's administration have suggested utilizing federal land for housing. However, a limitation exists in the availability of significant federal land in areas where people want to live and work.

Interest Rates and Economic Impact

Trump has also stated he intends to lower mortgage rates, despite the lack of a clear mechanism for a president to do so. “Reducing mortgage rates is a big factor. We’re going to get them back down to maybe even lower than 3%,” he claimed.

Presently, mortgage rates have been rising, reaching 6.72% recently. Channel points out that the president cannot set mortgage rates, and Trump's previous view that the Federal Reserve should take orders from the president is misguided. Even the Fed does not directly control mortgage rates; these are influenced by the bond market and investor expectations regarding inflation and economic policies.

Investors' fears that a Republican sweep could lead to increased deficit spending have contributed to the rise in yields on the 10-year Treasury, suggesting that mortgage rates may continue to increase in the near future.

Challenges Ahead

Experts elaborate that the underlying issue contributing to the housing affordability crisis is a severe shortage of homes. Recent estimates indicate that there is a gap of between 2.5 million to 7.2 million housing units needed in the U.S. from 2012 to 2023. Factors such as geographical constraints and legal barriers to development have hindered sufficient housing construction when it was most necessary.

While Trump's proposals to reduce regulations may assist in marginally boosting construction, some suggestions, like mass deportations, may have detrimental effects on housing supply.

Experts like Channel argue that Trump's housing policy statements lack substantial detail and face significant implementation challenges. Many proposed measures could exacerbate existing problems rather than resolve them. Additionally, the housing crisis is rooted in long-term trends, making it unlikely that quick fixes will emerge.

Overall, both political parties have struggled to effectively address the housing market's challenges over the past decade. Real estate economists caution that proposed policies, regardless of who is in power, may sound appealing but often fall short of delivering real change.

Trump, Housing, Election