Did you know that Trump’s promises to tackle the housing market crisis was crucial in winning over voters?
Many Americans are hoping for a resolution to the challenges plaguing homeownership. Among these voters were young Americans, often dubbed the "basement generation," who had spent years living with their parents due to unaffordable housing.
Redfin CEO Glenn Kelman captured this sentiment, stating, “The young voters who, after years living in their parents’ basement, swung right in this election, will expect President Trump to act as America’s real estate developer in chief, and build the housing that they need.”
The connection between housing struggles and political leanings became evident in voting patterns. NBC News found that counties with the toughest housing markets experienced the most significant shift toward Trump, with the top 20% hardest-hit areas showing a 4.2-point swing to the Republican side. This outpaced the nationwide 3.1-point shift, emphasizing how closely housing affordability is tied to economic concerns.
Now, with Trump officially securing the presidency, questions abound: will his leadership provide relief to the strained housing market, or could it worsen the crisis? Already, the anticipation of his win sparked movements in mortgage rates, with the so-called “Trump trade” pushing rates higher. As his presidency begins, all eyes are on whether these trends will stabilize or worsen.
Understanding the Housing Crisis: A Backdrop to Trump's Presidency
The U.S. housing market is grappling with a crisis that has been years in the making. Home prices soared during the pandemic as remote work allowed people to relocate freely, coupled with record-low mortgage rates that dropped below 3% in July 2020. These rates remained historically low for over a year, driving demand and fueling what many now call a housing market bubble.
However, as inflation surged, the Federal Reserve responded by raising interest rates, causing mortgage rates to climb. Last November 14, the average 30-year fixed mortgage rate had risen to 6.08%, marking a dramatic shift in affordability.
The sharp rise in mortgage rates has made homeownership prohibitively expensive for many. The monthly cost of owning a home, including mortgage, taxes, and insurance, has soared to $2,800—more than double the $1,200 average in 2016. In 2016, homebuyers spent about 24% of their income on housing; today, that figure has ballooned to 40%.
The Lock-In Effect: Why Homeowners Aren't Selling
Compounding the affordability crisis is the “lock-in effect.” In the second quarter of 2024, more than half of all mortgages have interest rates below 4%, and three-quarters are under 5%. Homeowners locked into these low rates are reluctant to sell and take on higher mortgage costs.
As Brent Wells, a Texas real estate broker, observed, “You can put up with a lot of ugly at a 3% interest rate.”
This reluctance to sell has led to a severe housing supply shortage. The U.S. housing market is currently short by an estimated 1.5 to 3.8 million units, according to Freddie Mac. Jerome Powell, Chair of the Federal Reserve, summed it up: “The real issue with housing is that we have had, and are on track to continue to have, not enough housing.”
With both buyers priced out and sellers unwilling to move, the market has come to a near standstill. Home sales fell to their lowest point in nearly three decades in January 2024, with just 4.09 million homes sold—a 19% drop from the previous year and an 18% drop from 2021 to 2022.
With such deep-rooted issues, the U.S. housing market demands urgent action. Lowering interest rates could help, but as Powell noted, “Normalizing rates alone won’t solve the housing market’s affordability strain.” Instead, addressing the chronic undersupply of housing will be key to stabilizing the market.
Trump’s Fiscal Policies and Their Impact on the Housing Market
President-elect Trump campaigned on a platform of making homeownership more affordable by addressing inflation and lowering mortgage rates. However, many economists predict that his proposed fiscal policies might have the opposite effect.
Trump’s economic agenda—characterized by expansive deficit spending, aggressive tariffs, and deregulation—is expected to stimulate the economy but could also accelerate inflation and push mortgage rates higher.
Federal Deficit and Rising Treasury Yields
Trump’s fiscal promises are projected to increase the U.S. national debt significantly. The Committee for a Responsible Federal Budget estimates that the budget deficit will swell by $7.8 trillion between 2026 and 2035.
To finance this growing debt, the government would need to issue more bonds, such as 10-year Treasuries. Investors would likely demand higher yields on these bonds, which serve as benchmarks for mortgage rates. As Lawrence Yun, chief economist at the National Association of REALTORS®, explains, “A large budget deficit will prevent mortgage rates from going down to 4%.”
Indeed, the trend has already started. Yields on 10-year Treasuries surged immediately after Trump’s election victory, rising to 4.44% on November 6—an overnight increase of 0.14%. This jump sent the average 30-year fixed mortgage rate to 6.79% by early November, up 9 basis points in just a week.
Tariffs and Inflation
Trump’s proposed tariffs, including blanket rates of 10–20% on imports and up to 100% on Chinese goods, are expected to drive up consumer costs and further fuel inflation. These tariffs could directly impact housing by increasing the cost of raw materials such as lumber and steel, essential for construction and home renovations.
Analysts predict that this would exacerbate affordability challenges for homebuyers, particularly during peak seasons like spring.
Adding to these challenges, Trump’s policies on immigration introduce another layer of complexity to the housing market. Immigrant labor, which constitutes approximately 31% of the U.S. construction workforce according to the NAHB, plays a crucial role in homebuilding. Mass deportations or restrictions on immigrant labor could disrupt this workforce, creating a labor shortage. This would drive up construction costs and suppress new housing development, further deepening the existing supply crisis.
The Role of the Federal Reserve
While mortgage rates are influenced by numerous factors, including Treasury yields and inflation, mortgage rates are not directly set by the president. The Federal Reserve plays a role in shaping interest rate trends.
If Trump’s policies were to drive inflation to the projected range of 6–9.3% by 2026, as the Peterson Institute for International Economics suggests, the Fed might be compelled to raise rates further. This could hinder any efforts to reduce mortgage rates and stimulate real estate development.
If Trump creates an environment where the Fed can lower rates, it could spur a wave of real estate development. However, Trump’s expressed dissatisfaction with the Fed’s independence raises questions about the feasibility of such outcomes.
Trump’s Pro-Business, Real Estate-Friendly Stance
As a real estate developer, Trump is seen by many as someone who truly "understands" the market. Jeff Holzmann, Chief Operating Officer of RREAF Holdings, explains that Trump's real estate background gives him unique insight into what drives demand, quality, and profits in the housing sector. This understanding has shaped his policies, which are aimed at increasing housing supply through pro-business measures.
In line with this, Redfin CEO Glenn Kelman has noted, “Many of America’s problems are hard to solve, but this one isn’t, especially for a president who loves construction.”
Reducing Regulatory Barriers
Trump’s stance on housing includes a strong push to reduce the regulatory obstacles that increase housing costs. During his presidency, he signed an executive order aimed at “Eliminating Regulatory Barriers to Affordable Housing.”
This move was designed to address the high costs associated with local, state, and federal regulations, which, according to the National Association of Home Builders, add more than $90,000 to the price of a new home. This accounts to 24% of the cost of a single-family home and about 41% of the cost of a multifamily home.
Opening Federal Lands for Housing Development
Trump also proposed opening up federal lands for housing construction, particularly in rural areas. At a press conference, he remarked, “We’re going to open up tracks of federal land for housing construction,” aiming to reduce the regulatory burden by introducing "ultra-low tax and ultra-low regulations" in designated zones.
However, critics point out that these federal lands are often located in rural areas with little existing infrastructure, which could make any development there costly and unlikely to provide relief to more densely populated urban centers where housing demand is highest.
Daryl Fairweather, Redfin’s Chief Economist, argued that it “doesn’t do anything for these densely populated blue cities that really need the most help.”
Short-Term Economic Optimism and Housing Demand
Trump’s pro-business reputation has previously led to an increase in housing demand. Following his 2016 election victory, mortgage applications spiked, with a significant jump in demand as potential buyers responded to the economic optimism that accompanied his win.
According to Redfin, following the election, demand from homebuyers requesting services through their platform saw a 25% increase in a single weekend, the largest year-over-year jump at the time.
Trump’s real estate-friendly policies may offer short-term relief to the housing market and help stabilize home prices. However, unlike in 2016, experts warn that the current affordability crisis could undermine the long-term impact of these measures, as the lack of affordable housing continues to be a major barrier for many potential homebuyers.
Deregulating the Mortgage Market: Privatizing Fannie Mae and Freddie Mac
Trump’s administration has also signaled intentions to privatize the government-sponsored entities (GSEs) Fannie Mae and Freddie Mac. This plan, championed by Trump allies like Treasury Secretary Steve Mnuchin, could significantly change the mortgage landscape.
Currently, these GSEs back about half of U.S. mortgages and benefit from federal support, which helps keep borrowing costs lower. Privatization would remove these benefits, raising capital costs and possibly increasing mortgage rates, especially affecting low- and moderate-income buyers.
However, privatization could also allow Fannie Mae and Freddie Mac to merge with other mortgage players, creating efficiencies and expanding their capabilities. While stock prices of these entities surged following Trump’s election, the long-term effects of such privatization on consumers remain uncertain.
Trump’s housing policies present a complex blend of short-term optimism and long-term challenges. On one hand, his pro-business stance and deregulation efforts could stimulate economic confidence, possibly stabilizing the housing market for a time.
On the other hand, the structural issues—such as the ongoing affordability crisis—pose significant risks, which could ultimately lead to a reset or prolonged stagnation in the housing market.
This has broader implications for personal wealth as well, as more Americans miss out on the equity growth that homeownership has historically provided. In this context, real estate agents must stay informed and offer timely advice to clients, helping them navigate the uncertainty brought by these shifting policies.
Ultimately, the trajectory of the housing market will depend on how these policies are implemented and whether they can strike a balance between boosting economic confidence and addressing the deep-rooted affordability challenges.
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