Housing Market Challenges Await President-Elect Trump
The housing market that President-Elect Trump is about to inherit is vastly different from the one he encountered during his first term. The affordability crisis has worsened significantly, with average home prices and mortgage rates skyrocketing. This has led to a dramatic slowdown in buying and selling activity, as homeowners are reluctant to give up their low-rate mortgages obtained before 2022.
Home Prices Reach New Heights
Existing home sales in 2024 are on track to reach a nearly 30-year low. The median home price in the US has surged to $420,400, a staggering 35% increase from $310,900 just before Trump’s first term. To make matters worse, average 30-year fixed mortgage rates have breached the 7% mark, compared to 4.09% at the start of his first term. This means that a family putting 20% down on a $400,000 home would need to pay an additional $594 per month.
Proposed Solutions Raise Concerns
The incoming Trump administration has promised to slash mortgage rates and home prices by implementing mass deportations of undocumented immigrants and easing federal regulations around building and land use. However, economists and housing market experts argue that such sweeping changes are unlikely to have the desired effect. In fact, some of Trump’s proposed policies, such as tariffs, may exacerbate inflation and worsen housing affordability.
Tariffs and Deportations: A Recipe for Disaster?
Pandemic-related supply chain disruptions have already driven up home construction costs. Trump’s plan to impose broad tariffs on imports from Canada, Mexico, and China has many economists worried that the problem will only worsen. The National Association of Homebuilders estimates that 7% of materials used for residential construction were imported in 2023, including wood from Canada, lime and gypsum from Mexico, and appliances from China.
The Construction Labor Force Conundrum
Mass deportations may also hurt housing supply, as many immigrants work in construction. According to the NAHB, nearly a third of the construction labor force is foreign-born, with immigrants making up 41% of the labor force in California. “The inputs for building housing are materials, labor, and capital,” said Stijn Van Nieuwerburgh, a real estate and finance professor at Columbia University’s Graduate School of Business. “On all three counts, there is substantial risk for cost increases, making building more difficult.”
Fannie Mae and Freddie Mac: A Complex Challenge
Another top priority for Trump will be the release of mortgage giants Fannie Mae and Freddie Mac from federal conservatorship. While the companies have improved their fortunes since the 2008 subprime mortgage crisis, any plan to release them will be lengthy and complex. The White House will need to balance how to release the companies without disrupting the $12 trillion mortgage business.
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