How will President Trump affect US Real Estate?

ricardo, 11/10/16 9:52 AM

Never before has America had a New York City property developer and real estate broker (yes, he has a NYC broker’s license) sitting in the White House. While many of us may not agree with Trump’s behavior and policy positions, one thing for sure is that Trump will be pro-property and pro-real estate.

While some postulated that a Trump presidency would be a black swan event, rather than plunging, both the US dollar and stock market rose today!

If you are wondering how the policies of President Trump affect US Real Estate, here are insights as to how Trump will likely operate once in office.

Will he use real estate to kickstart the economy?

Trump is a property developer and real estate broker. He has used real estate himself as an investment all his life and has said that he’s interested in boosting homeownership. Given that his family business is real estate, either through his own company, the Trump Organization, or his son-in-law’s, Kushner Properties, we expect Trump to continue his love affair with property.

What will happen to mortgage rates?

Rates are poised to remain low for a while. “Mortgage rates are falling because investors are seeing safe yields in U.S. mortgage backed securities, reflecting their confidence in the relative safety of the U.S. housing market,” wrote Trulia chief economist Ralph McLaughlin in a statement the day after the election. “Furthermore, the Fed is likely to delay a December rate hike because of global economic turmoil. Both effects mean short term win for borrowers, and we’ll likely see an increase in mortgage refinancing if rates continue to plummet.”

Will he lower taxes for real estate investors?

Republicans retained control over the House and Senate. As a result, the republicans have unfettered control over the future of tax policy, meaning there will some big changes that will affect taxes for real estate investors. Trump has proposed to:

  • Lower tax rates, with capital gains tax at a top rate of 20%.
  • Eliminate the estate or death tax
  • Reduce corporate taxes from 35% to 15%

And while he may not get everything he wants in terms of tax reform, our tax law is ripe for change (both the Republicans and Democrats have called for this), and that change is likely to come before August 2017 before election season begins for 2018.

Could it become easier to borrow money?

Reduced regulation, one of the hallmarks of his campaign, would allow banks to step up lending, something that has been very subdued since 2008.  Another way that a Trump presidency could make it easier for consumers to own homes would be to lower premiums for FHA loans or cutting guarantee fees for Fannie Mae or Freddie Mac.

How will regulations be affected?

Much of Trump’s platform has centered around deregulating the financial market in order to more fully revive it, and that alone could also give a boost to real estate. This is something that Trump — and the Republican party as a whole — has been vocal about.

Trump has proposed to reduce both Banking regulations and Building regulations. Loosening regulation on lending could boost homeownership by making it easier for consumers to obtain loans. As for Building regulations, at a National Realtor Association meeting, Trump estimated that 25% of costs to build a house related to regulations. He would like to get that down to 2%. If construction is deregulated, this would mean more affordable homes for consumers.

Will the mortgage interest deduction go away?

No! Last year, a tax plan that Trump shared specifically and explicitly mentioned that he would preserve the mortgage interest deduction.

Will he continue the 1031 exchange program?

Trump, who came under immense criticism for aggressively using the tax code to reportedly not pay federal taxes, would likely preserve the controversial 1031 tax-free exchanges, which allow landlords to sell property without paying capital gains taxes if they plow the proceeds of a sale into other real estate investments.  This 1031 exchange program policy is one of the underlying bedrocks of the real estate industry and Trump will preserve this policy.

What about immigration?

Trump’s immigration policy has undergone many changes since he first announced his candidacy, and immigration reform won’t be an easy bill to push through Congress or the Senate, so it’s difficult to determine whether this will influence the NYC real estate market to any large degree.

Will Trump be able to implement all his campaign positions?

For those of you who are feeling emotional about Trump being president after some of his outrageous rhetoric and behavior, remember that the US President does not have unrestrained power. Our founders did not want power to be controlled by just one man or one group with the possibility of winding up under the rule of another dictator or tyrant. Accordingly, our government is divided into three branches: the executive branch, the legislative branch, and the judicial branch. This is why many of Trump’s more outrageous campaign policy positions will not be a reality – either they will be opposed in the legislative branch or overturned by the judicial branch.

No question that this election was very divisive. But, now that the election is over, the American people will come together as we have always done. As Obama said of Trump: “We are all rooting for his success”.