What Now, Real Estate?
The results of the 2024 presidential election have left an undeniable mark on the real estate market. With Donald Trump returning to the White House, questions about affordability, supply, and demand loom large for homebuyers and sellers alike. What can we expect moving forward, and how do recent trends help us navigate the future of real estate?
Higher Mortgage Rates: A Persistent Headwind
Mortgage rates, already a challenge throughout 2024, surged further following Trump’s election victory. According to Mortgage News Daily, the average 30-year mortgage rate hit 7.13% on November 6, 2024, a marked increase from 6.27% at the start of the year. Over the past 12 months, inflationary pressures and rising 10-year Treasury yields have contributed to this steady climb.
As mortgage rates follow the trajectory of the 10-year Treasury note, they rose in anticipation of Trump’s fiscal policies, which are expected to widen the federal deficit. Higher federal borrowing costs have pushed bond yields upward, dragging mortgage rates with them.
The ripple effect of these elevated rates has been stark. Monthly mortgage payments for new homebuyers have increased by an average of 15% compared to January 2024, significantly straining affordability.
Housing Supply: A Market in Tight Quarters
The U.S. housing market has faced a consistent supply crunch over the past year, with inventory levels dropping nearly 8% year-over-year as of October, according to Realtor.com. Factors contributing to this shortage include:
Labor shortages: The construction industry faces a deficit of 300,000–400,000 workers, according to the National Association of Home Builders (NAHB). Immigrant labor, which accounts for 25% of the construction workforce, has been critical, and Trump’s proposed immigration crackdowns could exacerbate this problem.
Material costs: Tariffs on imported goods, including Canadian lumber, have driven up construction expenses, adding an estimated $14,000 to the average price of a newly built home.
Land and regulatory barriers: The scarcity of developable land and extensive regulations further delay housing projects.
Though a second Trump administration promises deregulation and potential tax incentives for builders, these measures will take time to impact the supply pipeline. Meanwhile, the existing shortage continues to elevate home prices.
Affordability Challenges Worsen
The combination of rising home prices and climbing mortgage rates has made homeownership increasingly unattainable for many Americans. The median home price reached $413,800 in October, up 6.1% from the previous year. With higher interest rates, affordability has eroded for first-time and moderate-income buyers.
The National Association of Realtors (NAR) reports that housing affordability hit a 15-year low in mid-2024, disproportionately affecting prospective buyers in middle-income brackets. High-income buyers, meanwhile, remain active in the market, further skewing demand and pricing dynamics.
Policy Shifts: Opportunity or Uncertainty?
Trump’s policy platform includes both potential opportunities and significant risks for the housing market:
1. Tax Incentives for Builders: Expanded housing tax credits could spur more development, particularly in underserved areas. Revisions to “opportunity zones,” introduced in Trump’s first term, may provide additional incentives for affordable housing projects.
2. Deregulation: A lighter regulatory approach could accelerate project approvals and reduce costs for developers, boosting housing supply over time.
3. Fannie Mae and Freddie Mac: Discussions about privatizing these government-sponsored entities, which back most U.S. residential mortgages, could reshape the secondary mortgage market. While the 30-year mortgage is unlikely to disappear, liquidity concerns could affect loan availability and pricing.
However, experts warn that these policy shifts could favor high-income individuals and existing homeowners, leaving affordability challenges for middle- and low-income buyers unresolved.
Supply, Demand, and the Road Ahead
Despite the policy backdrop, the fundamental dynamics of supply and demand remain unchanged. Inventory constraints continue to support high prices, while elevated borrowing costs limit the pool of qualified buyers. Creative financing solutions and targeted strategies will be essential for those still in the market to navigate these headwinds.
The real estate market may stabilize longer as new supply eventually comes online and inflationary pressures ease. However, the immediate future remains challenging, particularly for first-time buyers.
Conclusion: What Now?
The real estate market is at a crossroads. While Trump’s second term introduces potential opportunities for builders and developers, affordability challenges persist for most buyers. Staying informed and adapting to this evolving landscape will be crucial for real estate buyers and sellers.
As we look to 2025 and beyond, the question remains: What now? The answer lies in balancing optimism with pragmatism, finding opportunities amid uncertainty, and preparing for a market that remains as dynamic as ever.
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Source: This blog post draws insights from "Six Ways a Second Trump Presidency Will Affect Home Buyers and Sellers," authored by Aarthi Swaminathan and published by MarketWatch on November 7, 2024.
