Well at least it is over with and with enough margin that it is not likely to be contested. Wherever you fall on the political spectrum, we have a result so I will attempt to forecast how this election will impact residential real estate on the national level and more importantly, in Austin.
Three main factors continue to drive housing affordability: wages, interest rates, and home prices. Let’s break down each of the claims made by the winning platform and explore their potential effects on the housing market.
Platform for Housing Affordability
The following comes directly from Agenda 47 on Trump's website.
"To help new home buyers, Republicans will reduce mortgage rates by slashing Inflation, open limited portions of Federal Lands to allow for new home construction, promote homeownership through Tax Incentives and support for first-time buyers, and cut unnecessary Regulations that raise housing costs."
While no administration can directly control mortgage rates (since they are driven by the market), they can pull levers that indirectly influence them. Slashing inflation would require monetary tightening which conflicts with the proposed Trump budget, so let's look at each proposal under the light of some analysis.
Crackdown on illegal labor
Around 25% of the construction industry relies on immigrant or illegal labor. Any significant reduction in this labor pool, whether through deportations or other measures, will likely raise labor costs. On the other side the Trump administration argues that it will reduce demand by removing this portion of the population from the home buyer pool. While fewer home buyers will lower demand for sure, this will only happen at certain price points.
First off there are approximately 11 Million undocumented immigrants in the US. Just off the top, that is just 3% of the population, so if they magically disappeared and they bought houses at the same rate as the rest of the US population, demand would drop at most by 3%. These demographics can be very isolated geographically and may not reduce demand everywhere, but rather only in pockets where those buyers are competing. So there could certainly be some truth to reducing demand which would lower prices in some segments. An interesting question would be how many undocumented immigrants bought a home in the last 8 years which is difficult to determine. Undocumented workers also have less access to mortgages so I am doubtful that this is a significant buyer pool that if it went away would materially impact demand for purchasing single family homes. Rather it is more likely to lower demand for rental properties.
Tariffs
A proposed 10% tariff on all imports and potentially up to 50% on goods from China would likely increase the cost of construction materials. This would drive up the price of new home construction, making it more expensive to build.
Opening up federal land for development
Opening federal lands for development could make land more available, but this doesn’t necessarily align with where people want to live. Development on federal lands might be limited to specific areas, such as national parks, and would likely be geared toward luxury properties. For this to have a meaningful impact, the land would need to be located in highly desirable areas near major cities, which isn’t always the case.
Tax incentives
Adding tax incentives can certainly make housing more affordable. Housing already has many of those incentives from being able to deduct your interest payments to selling your home and paying no tax on the gains. The effectiveness of any new incentives will depend on their specific design and how they’re implemented.
Reduced regulations
Cutting unnecessary regulations could make it easier to build faster for sure as well as potentially lower the price to build. An increased supply of housing would certainly drive prices down, but builders will only build if they can make a profit. Speed to permit can certainly help in terms of both time and affordability because delays incur carrying costs which are passed along to buyers. So this sounds good in principal, but the regulations that impact building are set at the local level where there isn't any federal permitting required. So this may impact building on federal land or projects developed by the government. Both of those are an insignificant portion of the residential real estate market, so I don't see how the executive branch can really move the needle on local regulations.
Instead focusing on infrastructure development with more federal dollars being spent on more water and sewer would have a positive impact, but that is not something that the Trump administration has mentioned so far.
Interest Rates and Market Forecast
Looking ahead to 2025, leading financial institutions forecast that mortgage rates will fall below 6% by the end of the year. Lower rates will make it easier for buyers to finance existing homes, but they could also put upward pressure on prices, which could be inflationary.
Rates are king and wage growth even if it slows is still positive. These will both push the market to close the gap and increase activity. I expect it to be more attractive for buyers as the year goes on. We will still have a spring push because psychologically more people buy then, but next fall we will see even more activity because of continuing fall in rates, although prices may inch up as a result.
2025 should be a recovery year, but not a dramatic one. The market will likely return to a "new normal," with modest price increases and a more balanced environment. We won’t see any dramatic price spikes, but the market should regain some momentum as conditions stabilize.
As always, question everything and don't take suggestions as absolutes. These are written from a perspective of our experience and offering our insight, however limited. We're not perfect and get things wrong... but not on purpose.
