Trump's Real Estate Conundrum

Trump's Real Estate Conundrum

As President-elect Donald Trump prepares to take office this month, he faces a very different housing market than during his first term.

Growing housing affordability issues

A drastic decline in housing affordability over the past four years has affected many Americans — and Trump won his presidential election partly due to dissatisfaction with the economy.

Now Trump, a trillionaire and real estate developer himself, faces a housing dilemma: Mortgage rates aren't going down, and real estate prices are expected to continue rising in the coming years. Many economists estimate that the housing market this year will look no different than the stagnant market of recent years. At the same time, many of Trump's proposed policies, including tariffs and mass deportations, could worsen America's housing affordability problems.

Increase in mortgage interest rates

The standard interest rate for 30-year mortgages, the most popular form of home financing, was just under 2.8% when Trump left office in January 2021 during the pandemic. Last week he was there 6.91%. That means people who borrow money to buy a home will now have to pay hundreds or even thousands of dollars more per month than if they had bought a home four years ago for the same price.

The real estate prices are also increased significantly. National home prices increased 37% from January 2021 to October 2024, according to the S&P CoreLogic Case-Shiller Home Price Index.

Trump's housing promise

Trump did not present a formal one during his campaign Policy plan to improve housing affordability, but in a statement, Taylor Rogers, a spokesman for the Trump-Vance transition team, said Trump would end the housing affordability crisis in his coming term.

“President Trump will make good on his promise to make housing affordable again by defeating historic inflation and lowering mortgage rates,” Rogers said. "President Trump will ban mortgages for illegal immigrants that drive up home prices, eliminate federal regulations that drive up housing costs, and open swathes of federal lands to large-scale housing construction with ultra-low taxes and regulations. The cost of new homes will be cut in half, and President Trump will end the housing affordability crisis."

Influence of regulations and local laws

Trump has frequently spoken about how regulations have created cost burdens on his real estate projects. During his campaign, he promised to reduce regulations on builders who can raise the list price of new homes. A 2021 study from the National Association of Home Builders found that regulations accounted for $93,870 of the final price of a typical new home. At the time, the average price of a home was $394,300. In November, that price is $484,000, according to the U.S. Census Bureau.

However, many of these regulations are the result of local laws that Trump refused to interfere with during his first term. In one Guest article from 2020 in the Wall Street Journal, Trump and then-Housing and Urban Development Secretary Ben Carson asserted that they wanted to "protect America's suburbs" by supporting local single-family zoning laws, which critics often blame for the lack of newly built affordable housing.

Effects of deportations and customs duties

“A lot of what Trump has said is in the wrong direction when it comes to housing prices,” Parrott said.

Parrott referred to Trump's promise of massive deportations hinder housing construction activities could.

A surge in immigrants can increase demand in already underserved areas while improving supply, as undocumented immigrants play a significant role in the U.S. construction industry.

Some of Trump's other policy proposals could also increase the cost of buying a home.

“The main factor in affordability is actually mortgage rates,” said Lawrence Yun, chief economist at the National Association of Realtors. “If today’s 7% mortgage rate falls closer to 6% or less, that would make a big difference in affordability.”

Despite the Trump transition team's promise to cut rates, mortgage rates are tracking the 10-year Treasury note, based in part on perceptions of where inflation will head in the future. Trump's threat of sweeping tariffs some economists warn fuel inflation again could, could keep interest rates and therefore mortgage rates high.

Developments in the housing market

The higher interest rates would also prevent developers from building new houses.

Trump's first administration tried and failed Fannie Mae and Freddie Mac to privatize the lenders that guarantee 70% of mortgages in America. If he were to renew that fight, it could also lead to a rise in mortgage rates, Yun said.

Housing: Is a solution in sight?

A solution to America's housing crisis could become a pressing issue for voters in the coming election, Cowen financial policy analyst Jaret Seiberg wrote in a note to clients last month.

“We believe the GOP must address entry-level home inflation to be successful in future elections,” Seiberg wrote. "We believe entry-level home inflation will allow Democrats to perform better in the midterm elections and give them an advantage in the 2028 presidential election. Republicans recognize this risk. That's why we expect action."

However, NAR's Yun believes that some of the current stresses in the American housing market may be able to ease on their own.

Homes are sitting on the market for longer, suggesting steeper price reductions are coming soon - and the number of pending home sales rose in December for the fourth month in a row, according to NAR data. Many home hunters have accepted that mortgage rates are unlikely to drop around 6% and have begun to no longer put off their purchasing plans.

“I think the bottom of home sales was pretty much 2024,” Yun said. "More and more people will be able to buy and more and more people will come into the market to list their properties. I think there will be more movement in the housing market this year."