Finally, Donald Trump has won the race to the White House. He has been elected as the 45th president of the USA (whether you like it or not) after a shock victory over Hillary Clinton. There is no denying Donald Trump was the most controversial candidate and unlikely to win the presidential election, thanks to his outrageous statements on women, immigrants and Muslims.
But that is history now. And fact is that Donald Trump will be sworn as the 45th president of the United States on January 20. With Mr. Trump on president’s seat, there are major changes to be expected in immigration policies, economy, trade, foreign policies and tax. Needless to say these changes will have direct or indirect impact on the US industries including health care, energy and financial services and tech sectors. And real estate is not an exception!
So, how will real estate market here in California respond to president’s decisions for the next four year?
This question is also interesting as Mr. Trump is himself a real estate developer and is known for his venture, Trump Organization, a conglomerate managing hotels, real estate and residential properties. Real estate investors are expecting from President-elect who is well versed with the characteristics of real estate industry, may be through favorable tax rates or financial bills.
Ironically, Trump’s policies are still unclear on real estate proposals. This is why it is too early to know how Donald Trump presidency will influence the housing industry.
Here we have listed the possibilities in California’s real estate market if Mr. Trump executes his policies and proposals after holding the office.
1. Trump’s Tax Reform is a Double Edged Sword for Real Estate
We have mentioned before that real estate is expecting positive from the next president being a real estate man. For example, Trump’s strategy to encourage infrastructure spending and deduct taxes will boost the economy, leaving people with more money to buy a home. He can also dissolve the Dodd Frank Wall Street Reform and Consumer Protection Act, making home loans cheaper and even readily available — a good signal for the people with bad credit history. In this way, Trump presidency can be the ray of hope of those home buyers struggling to save up for large payments.
But that may come with a downside as it would also increase the deficit, which in turn raise the inflation and interest rates, making homes less affordable.
2. Deportation of Immigrants Can Cost Homebuyer and Labor
Mr. Trump has made it clear during his campaigns that he would deport 2 million to 3 million illegal and undocumented immigrants. Since the day he started his campaign, immigration has been one of his prior agendas in his messages and appeal. According to the sources, US will deport nearly 1.2 million people a year under Trump’s reign. It can create more job opportunities for the Americans who have allegedly lost their jobs to immigrants.
But the same immigration policies have a chilling long term effect on the housing markets in California along with other states in the USA. And here are the reasons to say that:
- 1 in 4 construction workers is Immigrant
- 40% of new home buyers will be from other countries in the next 10 years
- Foreign buyers accounts for a significant portions of buyers in coastal and luxury markets
- 1/3rd of Homebuyers in the USA are Foreign Born
Remember, California has more immigrants than any other state, housing over 10 million immigrants. If some of them would be deported to their nations on the account of not having valid permissions, real estate in California would be affected badly.
Mark Zandi, chief analyst at Moody’s, says that Trump’s immigration policy is negative for housing.
3. Foreign Investment May Remain Low:
The luxury real estate market in the US is driven by the foreign investors who like to invest properties in Miami or New York. According to the National Association of Realtors, foreign homebuyers have brought 214,885 properties worth $102.6 billion in the nation from 2015 to 2016. China has been the major investor followed by Canada, India, UK and Mexico.
Once Trump holds the office, foreign investors may consider their decisions to invest in American properties. In short, they would be in wait-and-watch scenario. This is because interest rate has gone up since Trump’s victory in US election which diminishes the chances of getting quick returns.
According to a survey by Mansion Global, 83% real estate experts believed that Mrs. Clinton is “best person for the luxury real estate industry.” They cited her experience, sense of certainty, and political outlook.
On the other hand, Mr. Trump’s “America First” obsession and tough foreign trade policies can turn down some foreign investors for a while. Apart from that, Mr. Trump has promised to build a wall on Mexican-U.S. border to stop immigration, sending a negative message to most South Americans. However, in the long run, Trump may win back the confidence of the foreign investors with his policies.
4. Inflation Can Force Renters and Developers to do Less Projects
As Trump has promised of tax reforms and big spending on infrastructures, a potential home buyer can hope to buy home soon. On the other hand, many experts think that this could trigger inflammation if done without solid planning to balance the budget.
It will send nominal rent higher while the wages remain low or unmoved. Consequently, a buyer wouldn’t have a much needed hike in his wages to meet his rent, healthcare, and food costs, let alone buying house.
Besides, if Donald Trump will succeed in altering international trade policies and increase tariffs on imports, it can increase the cost of goods and workforce here. That can influence real estate investor’s ability to construct new homes with the ever increasing costs of workforce and materials.
In this way, Donald Trump presidency can influence the real estate industry in California. On the basis of above mentioned point, it can be said that property sector in the region will be on the rise though there may be some challenges to go through. Being a savvy real estate investor, you must prepare your project planning beforehand so that your profit can’t be affected by upcoming federal policies.