Back HomeThe Impact of the Election Results So Far
Even as the President elect, Donald Trump has already made a significant impact on both real estate and financial market speculations. His announcements and plans prior to November 8th aimed to stimulate the economy by creating jobs, appreciating the value in real estate, reducing banking regulations, and reducing tax rates for those who buy and sell assets.
Real estate finance is affected by two major factors: inflation and interest rates. Konrad Putzier of the Real Deal magazine writes, “[Trump’s] planned debt-financed fiscal spending spree – assuming it makes it past budget hawks in Congress – could well push up inflation and interest rates…rising rates are good and bad news for real estate: on the one hand, they make debt financing more expensive, push cap rates up and property prices down. On the other hand, rising rates are usually a sign of economic growth, and improving fundamentals tend to push up income from real estate.” (1). The rising rate could potentially slow down the rate at which developers and homeowners can receive lending, and ultimately the rate at which houses and condos are being built.
In 2010, a regulation known as Basel III was instated to prevent developers from flooding the market with new properties too quickly. The Real Deal Magazine says it “require[s] banks to keep a larger equity cushion as a buffer against any loans deemed risky, including real estate construction loans” (1). This, of course, was put in place after the housing market crash in 2008. The government wanted to be sure that no loans (especially sub prime mortgages and bonds) were distributed that seemed disproportionately high risk. Konrad Putzier writes that “the current regulations are “slowing the lending community’s willingness to finance construction, which is working to stop overheating and overbuilding,” (1).
This means that in New York City the surplus of condos on the market will begin to decrease, and that the market for buyers will likely become significantly more competitive. This has a two fold meaning: first, it means that the time to buy is now, and second, it means that it will be a good time to sell soon because there will be a higher demand for properties on the market. On the other hand, Barney Frank told the Real Deal Magazine that he “think[s] that’s going to make more capital available,” pointing out that banks would be left with few other investment options (1). Hiten Semati of the Real Deal writes “The California Association of Realtors protested the ruling, saying it would limit consumer choice. It’s not clear, however, why this would be the case: though the ruling sets a higher standard for dual-agency deals, it doesn’t restrict them. And since dual-agency deals make up a sizable chunk of the market, the ruling has the potential to increase transparency for a large number of buyers. And that’s a positive step” (2).
“Arguably the biggest way in which Trump’s victory could impact real estate finance is through interest rates. Trump has proposed a major infrastructure plan and tax cuts… a debt-financed spending spree typically can accelerate inflation, which in turn is likely to push up interest rates” (1). Now that Donald Trump has been elected President, he will have control over choosing the decision-makers that influence the interest rates.
This could in turn shift the market drastically in a positive way, and stimulate economic growth, especially in the real estate market. The Real Deal states, “again, investors appear to predict this will happen: the dollar has appreciated by about 4 percent against the Euro since Nov. 8. Chandan argued that because the dollar could well continue to rise, investors may continue to flock into New York real estate to benefit from the appreciation” (1). As evidence already shows, the markets have taken an upward turn in light on the election results.
(1) The Real Deal: How Trump Could Shake Up Real Estate Finance
(2) The Real Deal
