Posted November 9 2016, 3:30 PM PST by Matthew Gardner, Chief Economist, Windermere Real Estate

The Trump effect. How will it impact the US economy and housing?

Posted in Market News by Matthew Gardner, Chief Economist, Windermere Real Estate

 

The American people have spoken and they have elected Donald J. Trump as the 45th president of the United States. Change was clearly demanded, and change is what we will have.

The election was a shock for many, especially on the West Coast where we have not been overly affected by the long-term loss in US manufacturing or stagnant wage growth of the past decade. But the votes are in and a new era is ahead of us. So, what does this mean for the housing market?

First and foremost I would say that we should all take a deep breath. In a similar fashion to the UK’s “Brexit”, there will be a “whiplash” effect, as was seen in overnight trading across the globe. However, at least in the US, equity markets have calmed as they start to take a closer look at what a Trump presidency will mean.

On a macro level, I would start by stating that political rhetoric and hyperbole do not necessarily translate into policy. That is the most important message that I want to get across. I consider it highly unlikely that many of the statements regarding trade protectionism will actually go into effect. It will be very important for President Trump to tone down his platform on renegotiating trade agreements and imposing tariffs on China. I also deem it highly unlikely that a 1,000-mile wall will actually get built.

It is crucial that some of the more inflammatory statements that President-Elect Trump has made be toned down or markets will react negatively. However, what is of greater concern to me is that neither candidate really approached questions regarding housing with any granularity. There was little-to-no-discussion regarding housing finance reform, so I will be watching this topic very closely over the coming months.

As far as the housing market is concerned, it is really too early to make any definitive comment. That said, Trump ran on a platform of deregulation and this could actually bode well for real estate. It might allow banks the freedom to lend more, which in turn, could further energize the market as more buyers may qualify for home loans.

Concerns over rising interest rates may also be overstated. As history tells us, during times of uncertainty we tend to put more money into bonds. If this holds true, then we may see a longer-than-expected period of below-average rates. Today’s uptick in bond yields is likely just temporary.

Proposed infrastructure spending could boost employment and wages, which again, would be a positive for housing markets. Furthermore, easing land use regulations has the potential to begin addressing the problem of housing affordability across many of our nation’s housing markets – specifically on the West Coast.

Economies do not like uncertainty. In the near-term we may see a temporary lull in the US economy, as well as the housing market, as we analyze what a Trump presidency really means. But at the present time, I do not see any substantive cause for panic in the housing sector.

We are a resilient nation, and as long as we continue to have checks-and balances, I have confidence that we will endure any period of uncertainty and come out stronger.

 

 

 

Matthew Gardner is the Chief Economist for Windermere Real Estate, specializing in residential market analysis, commercial/industrial market analysis, financial analysis, and land use and regional economics. He is the former Principal of Gardner Economics, and has over 25 years of professional experience both in the U.S. and U.K.


10 Comments

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  • The Trump presidency, in my humble opinion, will probably bode well for continued housing growth if changes are made to the Dodd Frank laws. If credit qualifying is loosened up and the secondary market will agree to more financial risk in its investor market place then we'll see an uptick in more buyers moving into the housing market. Long term, I see inflation because cost of goods will go up not down for building materials and if significant tariff laws change that will only make goods more expensive for the US. It might make more jobs become available in the US but I believe that will be short lived because of rapid and continued advancements in technology, robotics and micro processing which will be spurred by large corporations making even more capital investments because of a prolonged good economy. If we are trying to protect jobs in the US, then we will make cost of goods rise unless companies use technology to control labor costs. Basically we are looking at "techno union wage busters". Trump's proposals may be very enticing in the short term (but I my opinion and I may be very wrong) America is in for a really rude economic awaking in the long term by moving towards an isolationist economy. In America there is no such thing as "cheap" labor so corporations will have to find ways to mitigate the cost in their financials in order to show investors returns. Time will tell, but hey, it will be interesting to see how this all goes down in the future.

    Posted November 12 2016, 11:13 AM by Wayne

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  • As with all campaign rhetoric, funding of Mr. Trump's initiatives were never discussed. $1Trillion for infrastructure? How will this be funded and by whom? Not from the middle class tax cuts he championed. Via debt from the countries he just threw under the bus? Housing is experiencing a huge shortage of qualified labor. Trades are being filled, in large measure, by emigrants. Mr. Trump's "Wall" policies would exacerbate the problem. Until we know the fiscal and policy details, I see more of the same in the next 2 years - glacial and uneven economic growth . . . at best.

    Posted November 11 2016, 9:24 AM by Paul Bogel

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  • Wouldn't increased infrastructure/defense spending presumably lead to more borrowing and more stimulus in the form of tax reform also lead to inflation and higher interest rates?

    Posted November 10 2016, 8:36 PM by Ron

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    • That is certainly possible - there are still scant details as to how many of the new administrations proposals will be funded.

      Posted November 14 2016, 9:16 AM by Matthew Gardner

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  • Don't forget about Amazon's effect on housing. Amazon stock has been sinking because Trump has a very antagonistic relationship with the Company and would love to see it fail.

    Posted November 10 2016, 4:57 PM by Brady

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    • Not to mention if he eliminates the H1-B Visa. There will be an immediate and significant reduction of tech employees within the city. Housing demand in the 3rd largest tech city will not be going up.

      Posted November 11 2016, 11:45 AM by Charles

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  • Because the last time less regulation and more housing related bank lending was part of the industry that worked out real well. How quickly we forget.

    Posted November 09 2016, 6:35 PM by Jon

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    • An understandable statement, Jon. It is still my hope that any “deregulation” will not be to the extreme (as in I can’t see doing away with Dodd-Frank in its entirety) but I will be monitoring this closely.

      Posted November 10 2016, 8:57 AM by Matthew Gardner, Chief Economist, Windermere Real Estate

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      • He said he will and can do away with Dodd-Frank., not to mention the EPA and Clean Water and Air acts..but then developers don't give a s...t about that.

        Posted November 11 2016, 8:40 AM by Donna

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        • Yes, please, let's not forget 2008 housing crash and all of the overextended mortgages. That mess still hasn't been cleaned up and we are all paying for it.

          Posted November 11 2016, 5:11 PM by Kathy

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