By Equity Smart Realty Inc | www.equitysmartrealty.com

The American Dream has long been defined by two core aspirations: entrepreneurship and homeownership. Yet, in recent years, the dream of owning a home has become increasingly difficult for many Americans. Whether you’re trying to buy a house or rent an apartment, rising costs and stagnant wages have made housing unaffordable for large portions of the population. Housing affordability, particularly in major cities like New York, has become a crisis, with limited options for buyers and renters.

While Presidents do not directly set borrowing costs or dictate mortgage rates, the policies enacted by a sitting president can significantly impact the housing market—especially mortgage interest rates. With former President Donald Trump returning to office for a second term, his administration’s approach to economic policy could have wide-reaching consequences on the real estate market, specifically regarding mortgage rates, housing affordability, and overall market stability.

In this article, we’ll examine how a second Trump administration could affect the housing market, focusing on the key factors of mortgage rates, inflation, and federal deficits.

Trump’s Economic Policies and Mortgage Rates

One of the most direct ways a president can influence the housing market is through monetary and fiscal policies that affect interest rates. In particular, mortgage rates are heavily influenced by the expectation of inflation and the actions of the Federal Reserve. Under Trump’s first administration, interest rates rose gradually as the economy grew, and when he returns to office, the trajectory of these rates will be closely watched.

The Role of Inflation in Mortgage Rates

Inflation expectations primarily drive mortgage rates. When inflation is expected to rise, bond investors demand higher yields to compensate for the reduced purchasing power of future payments. This, in turn, causes interest rates to climb, including mortgage rates. As a result, the higher the inflation, the more expensive it becomes for potential homeowners to borrow money to purchase a property.

During his first term, Trump’s economic policies, including tax cuts and deregulation, were seen as pro-growth. These policies helped boost the economy but also contributed to rising inflation. A second Trump administration could pursue similar policies, increasing inflationary pressures. As inflation rises, mortgage rates could climb, making home loans more expensive for buyers.

Federal Deficit and Its Impact on Mortgage Rates

Another factor that could influence mortgage rates is the federal deficit. During Trump’s first term, the national debt increased significantly, and a similar pattern could emerge in Trump’s second administration. When the federal deficit grows, the government borrows more money to fund its operations, which can put upward pressure on interest rates.

The U.S. Treasury issues bonds to fund its deficit spending, and when there is more borrowing, it can drive up the cost of borrowing across the economy, including for mortgages. If the deficit expands further under Trump, mortgage rates could rise as the demand for government bonds increases. Homebuyers could pay more for mortgages as rates climb in response to the government’s borrowing needs.

Housing Affordability and Supply Challenges

Trump’s second administration could also influence housing affordability and the availability of homes on the market, which are already major concerns in many parts of the country. One of the key issues driving housing unaffordability is a lack of housing supply. Many cities, including New York, have seen skyrocketing property prices, partly fueled by limited housing development.

Deregulation and Housing Supply

During his first term, Trump championed deregulation to stimulate economic growth. He rolled back various regulations, including those related to the housing sector, to make it easier for developers to build new homes. His second administration could continue this trend, potentially leading to more construction and an increase in housing supply.

However, this deregulation approach may come with trade-offs. While it could incentivize developers to build more homes and reduce some of the red tape that hinders construction, it could also exacerbate concerns about environmental protection and zoning laws. A balance should be struck between encouraging new development and ensuring that growth is sustainable and responsible.

Tax Policy and Housing Demand

Trump’s tax policies also significantly impacted the housing market. The 2017 Tax Cuts and Jobs Act included provisions that limited the amount of mortgage interest that could be deducted and capped property tax deductions, which hurt some homeowners, particularly in high-tax states like New York and California. In his second administration, further tax policy changes may affect housing demand.

For instance, if Trump seeks to implement additional tax cuts or changes to real estate taxation, it could influence how much individuals and investors are willing to spend on housing. While tax cuts could incentivize homeownership for some, eliminating or reducing certain tax benefits might dampen demand, especially among higher-income individuals who benefit the most from these deductions.

The Impact on Renters

Renters are also likely to feel the effects of Trump’s policies, especially if mortgage rates rise or housing supply remains constrained. If fewer people can afford to buy homes due to higher mortgage rates or increased housing costs, demand for rental properties may increase, putting additional pressure on rental prices. Renters in high-demand cities like New York could see even steeper rent hikes if the housing market remains competitive and inventory remains low.

On the other hand, policies incentivizing increased housing construction could lead to a greater supply of rental properties, potentially slowing down rent price increases in some areas. However, rising housing costs could continue challenging renters, particularly in markets with scarce affordable rental units.

What Could the Future Hold?

While it’s difficult to predict exactly how Trump’s second administration would play out regarding housing market policy, the key factors—interest rates, federal spending, housing supply, and tax policies—will be central to shaping the market. If Trump pursues policies that increase inflation, expand the federal deficit, and encourage deregulation in the housing sector, mortgage rates could rise, making homeownership even less accessible for many Americans.

At the same time, a potential increase in housing supply through deregulation could provide some relief, although the impact on affordability would depend on how much new construction occurs. For renters, the outlook is similarly uncertain, with both rising rents and potential changes in tax policies playing a role.

Ultimately, Trump’s second administration could profoundly affect the housing market, but the actual outcomes will depend on how the president addresses key issues such as inflation, federal spending, and the balance between regulation and development in the housing sector. For prospective homeowners and renters alike, the next few years could see significant shifts in housing affordability, with mortgage rates being a key factor to watch closely.

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