Agree or disagree with the First 100 Days milestone, it continues to be a measuring stick against which progress is evaluated for a new administration. It serves as a marker for assessing the health of each industry and real estate is no different. During Donald Trump’s first 100 days in office, the property market has shown clear signs of strength and long-term growth.
Still, there have been some housing-market red flags coming from the administration, like tinkering with the mortgage interest deduction as part of an overall tax-reform strategy, and reversing planned cuts to interest premiums on Federal Housing Authority mortgages. These appear, however, to have had little to no effect on the surging residential real estate market.
In fact, sales of previously owned U.S. homes rose more than expected in March to the fastest pace in a decade, according to the National Association of Realtors. Contract closings increased 4.4 percent to a 5.71 million annual rate while the inventory of available properties dropped 6.6 percent from a year earlier to 1.83 million.
Fundamentals are driving the market right now. Barring the unexpected, which is a somewhat relative term to quantify based on President Trump’s first 100 days, real estate should remain a solid investment for years to come.
For starters, interest rates remain at historically low levels. According to Freddie Mac, the average rate on 30-year fixed-rate home loans rose to 4.03 percent during the week ending April 27 from 3.97 percent a week earlier, the first increase in five weeks. The rate was 3.66 percent a year ago and averaged 3.65 percent in 2016, the lowest level in records dating back to 1971. Even with a possible tax overhaul on the horizon and additional Federal Reserve rate hikes this year (the central bank raised rates in March for a second time in three months) mortgage rates should remain attractive to potential homebuyers.
Demand from homebuyers should also support the market for some time. With a tightening labor market and more of the population showing confidence about their own economic prospects under Trump, consumers are more willing to make large purchases like a house. Further, supply is tight - a legacy of the 2007 financial crisis where homebuilding slowed dramatically.
As for commercial real estate, the sector is likely to show gains supported by the Trump administration’s corporate-friendly positions on economic growth and tax cuts. Recent tightness in the labor market also suggests sustained demand for commercial property.
Another supporting mechanism for the segment is foreign investment. And as the Trump administration tangles with Russia, Mexico and others on the world scene – affecting everything from asset prices to currencies – foreign capital continues to flow toward the safety of U.S. commercial real estate.
As the U.S. and the rest of the world acclimates to President Trump’s unconventional stewardship of the economy and foreign policy, the housing and commercial property markets should continue to strengthen for the remainder of the year and beyond as favorable market conditions continue to support real estate.