Trump's housing market predicament or dilemma
A substantial decrease in affordability for homes over the past four years has caused discomfort for many Americans, and this dissatisfaction with the economy played a role in Trump securing his presidency.
Now, as a billionaire real estate developer himself, Trump faces a predicament in the housing sector: Mortgage rates aren't decreasing, and home prices are projected to climb higher over the next few years. Many experts estimate that this year's housing market will resemble the stagnant housing market of the previous few years. Simultaneously, some of Trump's proposed policies, such as tariffs and mass deportations, could worsen the affordability crisis in the housing market.
The typical 30-year fixed mortgage rate, the preferred choice for home loans, hovered around 2.8% when Trump left office in January 2021 during the pandemic. Recently, this rate skyrocketed to 6.91%. Consequently, individuals borrowing money to purchase a home are now obligated to pay hundreds, or even thousands, more per month than if they had acquired a home of the same value four years ago.
Furthermore, housing prices have substantially increased since then. In the period between January 2021 and October 2024, as per the latest available data from the S&P CoreLogic Case-Shiller Home Price Index, national home prices have surged by 37%.
"I don't see any reason why the housing market will improve this year," remarked Jim Parrott, a nonresident fellow at the Urban Institute and a former advisor at the National Economic Council.
Trump's housing pledges
On the campaign trail, Trump didn't present a formal policy plan aimed at enhancing housing affordability, but Taylor Rogers, a spokesperson for the Trump-Vance transition, stated that Trump would resolve the housing affordability issue during his upcoming tenure.
"President Trump will accomplish his promise to Make Housing Affordable Again by defeating runaway inflation and reducing the mortgage rate," Rogers asserted. "President Trump will prohibit mortgages for illegal immigrants who inflate housing prices, eliminate federal regulations that inflate housing costs, open sections of federal land with minimal taxes and regulations for large-scale housing construction. The cost of new homes will be reduced by half, and President Trump will eliminate the housing affordability crisis."
Trump's housing policies
Trump often spoke about the financial burden imposed by regulations on his property development projects during his campaign. He pledged to cut regulations for homebuilders, which can inflate a new home's final price. A 2021 study from the National Association of Home Builders revealed that regulations contributed to $93,870 of a typical new home's price. At the time, the average price of a home was $394,300. As of November, it had risen to $484,000, according to the US Census Bureau.
However, many of these regulations stem from local laws, which Trump promised not to interfere with during his first term. In a 2020 op-ed in the Wall Street Journal, Trump and then-Housing and Urban Development Secretary Ben Carson vowed to "protect America's suburbs," supporting local single-family zoning laws, which critics argue impede the construction of affordable homes.
America's housing issues can be attributed to years of chronic underbuilding following the housing crisis in 2008 and the Federal Reserve's recent interest rate-hiking campaign to curb a historic bout of inflation. Many of Trump's policy proposals could intensify these issues.
Impact of deportations and tariffs
"Much of what Trump has proposed points in the wrong direction as far as home prices are concerned," Parrott stated.
Parrott pointed to Trump's promise of mass deportations, which could hinder home construction.
While an influx of immigrants can contribute to heightened housing demand in areas with a limited housing supply, potentially escalating competition for homes, they also aid in expanding the housing supply, given the substantial role played by undocumented immigrants in the US construction industry.
Some of Trump's other policy proposals could also increase the cost of purchasing a home.
"The primary factor influencing affordability is actually mortgage rates," noted Lawrence Yun, the chief economist at the National Association of Realtors. "If the mortgage rate falls from 7% to around 6% or lower, it would significantly impact affordability."
However, despite the Trump transition's promise to reduce rates, mortgage rates are tied to the 10-year Treasury, which is influenced, in part, by the perception of future inflation. Trump's threat of widespread tariffs, which some economists warn could rekindle inflation, may maintain interest rates and, consequently, mortgage rates, at elevated levels.
Higher interest rates would also hinder homebuilders' ability to increase new home construction.
Trump's administration attempted, and failed, to privatize Fannie Mae and Freddie Mac, the mortgage giants that support 70% of America's mortgages. If he were to renew this effort, it could also result in an increase in mortgage rates, Yun noted.
Homes have been lingering on the market for an extended period, suggesting that substantial price reductions might be imminent, as suggested by NAR's data. Interestingly, domestic property sale intentions showed an upward trend for the fourth consecutive month in December. This trend indicates that potential homebuyers are gradually accepting higher mortgage rates, around 6%, as a permanent fixture and consequently, are ceasing to postpone their house purchasing decisions.
In simpler terms, Yun predicted that the lower point in home sales would have likely passed by 2024. With more people being able to secure a home and additional sellers entering the market, we can expect a surge of activity in the housing sector this year.
In light of the projected increase in home prices and the current high mortgage rates, Trump's position as a billionaire real estate developer in the housing sector might face challenges.
Furthermore, some of Trump's proposed policies, such as tariffs and potential mass deportations, could exacerbate the affordability crisis in the housing market.
