Plans to eliminate federal income taxes, enact high tariffs and force the Federal Reserve to cut federal funds rates could tank the housing market, economists say.
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The countdown has begun to President-Elect Donald Trump’s second term, as Americans on both sides of the aisle await the consequences of Trump’s Agenda 47 and Project 2025 plans after he takes office in January.
Several economists and real estate experts have begun to theorize what the housing market could look like over the next four years, as Trump aims to solve affordability issues by slashing zoning regulations, softening interest rates, lowering energy costs and stripping undocumented immigrants’ housing rights in an attempt to boost inventory for U.S. citizens. The president-elect has also proposed imposing stiff tariffs on imported goods, in an attempt to shift manufacturing power to U.S.-based companies.
Danielle Hale
Realtor.com Chief Economist Danielle Hale said the impact of Trump’s policies is a “toss-up” as his plans to tackle building regulations and continue the Biden Administration’s plans to utilize unused federal land for affordable housing could lead to meaningful increases in inventory.
However, his plan to end the “inflation nightmare” by forcing down the cost of essential goods could erase the Federal Reserve’s progress in lowering inflation.
“Falling mortgage rates would unlock homeowners who currently find moving untenable because their existing mortgage rate is so much lower than the market rate and also improve prospects for buyers by amplifying the buying power of their existing budgets,” Hale told Newsweek on Wednesday. “However, taken as a whole, the various Trump policies could have the impact of raising inflation, particularly impacts stemming from proposed tariffs and reductions in immigration.”
Although Hale offered a more cautious outlook on a second Trump term, two construction company executives told Newsweek they expect the president-elect’s experience in the New York City development sector to heavily benefit the housing market by fast-tracking new inventory and boosting demand.
“A lower cost of capital with better economics for developers should help accelerate development while bringing more housing inventory online faster,” construction permitting platform GreenLite co-founder and COO Ben Allen told Newsweek. “The entire market benefits — developers, buyers and sellers alike.”
“The fact that Trump is a real estate developer himself also lends to the feeling that he ‘understands’ the market and what drives demand, quality and profits,” added commercial real estate company RREAF Holdings COO Jeff Holzmann. “Only time will tell, but the feeling around the street is that less regulation and favorable lending terms will create more incentives for developers, additional supply and stimulated competition. These are all good things for home buyers and investors.”
Holzmann also pointed to a Wednesday rally on The Dow and S&P 500, as evidence of a bright future for the housing market under Trump.
“The fact that Wall Street is betting the new administration will be a net positive for the economy is already a good sign,” he said. “A big question mark will be tariffs and how and who is appointed to key positions in cabinet and government agencies.”
Dr. Lisa Sturtevant
While Hale, Allen and Holzmann stayed on the more positive side of things, Bright MLS Chief Economist Lisa Sturtevant issued a somber warning about “more volatile” and “unpredictable” housing conditions under the president-elect.
Sturtevant highlighted the uncertainty connected to Trump’s ongoing legal battles, which include 34 felony charges issued in May, a largely indeterminate housing plan, and an economic strategy that leans on axing federal income taxes in favor of generating revenue from tariffs, forcing the Federal Reserve to cut federal funds rates, and cutting corporate taxes.
“We should expect more volatility in the housing market in the near term, as Donald Trump becomes only the second president to win nonconsecutive terms and the first felon to ascend to the presidency,” she said in an emailed statement. “Over the longer term, homeownership could become harder to attain for first-time and moderate-income homebuyers as his policies favor high-income individuals and existing homeowners.”
“Trump’s fiscal policies can be expected to lead to rising and more unpredictable mortgage rates through the end of this year and into 2025,” she added. “Signals of higher mortgage rates are already out there in the form of rising yields on the 10-year Treasury this morning. Bond yields are rising because investors expect Trump’s proposed fiscal policies to widen the federal deficit and reverse progress on inflation.”
Sturtevant also sounded the alarm about Trump’s mass deportation plans, which include deporting undocumented immigrants, repealing birthright citizenship, and rescinding citizenship for naturalized Americans. Outside of the social harm those policies would create, she said, mass deportation would hit the construction sector in the gut, as many workers would be sent back to their or their parent’s home countries.
“His mass deportation proposal would have a chilling effect on the construction industry, shrinking the already constrained labor force and stalling badly needed new housing construction,” she said. “At the same time, proposed tariffs will increase building costs. Limited inventory will keep home prices high and will continue to sideline many first-time buyers.”
“The housing market was just beginning to feel as though it was moving more toward balance following the unprecedented impacts of a global pandemic and related responses,” she added. “Heading into the election, inflation was coming down, mortgage rates had been easing, and more inventory was coming onto the market. The next few months could be a challenging time for prospective homebuyers. ”