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How Will a Trump Presidency Affect the Portland Real Estate Market?

Neither candidate said much about homeownership, or real estate in general, during their presidential campaigns. That is probably just as well given the track record politicians hold in fulfilling campaign promises. Trump is known to favor homeownership and is a strong proponent of deregulation. On that basis we are comfortable making the following predictions:

Borrowing:

Mortgage Rates: Long term mortgage rates have risen slightly since Election Day. They could have gone either way, and it is likely that the response will show a very short term fluctuation then a “return to business as usual” pattern. The consensus prediction remains that mortgage rates will gradually rise. We’ve been hearing that for a long time; this time it is more likely to happen. Watch the 10 year T-Bill if you want to track and predict changes. The Federal Funds Rate (aka Overnight Rate) is less relevant.

Banking Regulations: Trump, with strong Republican support, will repeal or at least significantly change the Dodd-Frank Act and the Consumer Financial Protection Bureau (CFPB). Doing so has many consequences. One is that consumers will likely find it easier to get loans, for better or worse.

Fannie Mae and Freddie Mac Reform: These two government-sponsored enterprises (GSE’s), which guarantee or purchase mortgages, are projected to run out of funds in 2018.

Income Taxation of Real Estate:

Homeowner Mortgage Interest and Property Tax Deductions: Nearly certain to remain untouched.

Homeowner Gain on Sale Exclusion: Ditto. The $250,000 single / $500,000 married filing jointly exclusions of gain on the sale of a principal residence have been in effect since 1997. Might it be time to raise the exclusion amounts?

Depreciation Rates: Not talked about, but Trump would probably favor faster depreciation write-offs for real estate, which would increase tax savings and boost the return to investors.

Capital Gains: Whether real estate specific or as part of his overall tax policy, Trump would likely support lower capital gains tax rates, though his web site does not mention it.

Section 1031 Like-Kind Exchanges: Often threatened, safe for now.

Passive Activity Loss Limitations: Very important, and we have no idea if anything will change in this area.

Investor vs Developer Differences: Trump is both, and understands that being taxed as an investor is generally preferred to being taxed as a developer. Often the difference is about whether profits are treated as capital gain or as ordinary income (capital gain treatment is far more favorable). Noise during one of the campaign debates about the “carried interest provision” aside, we think it highly unlikely that anything will change in this area that will hurt real estate investors.

Real Estate Development:

Trump told the National Association of Home Builders that the housing industry is over-regulated. One consequence of deregulating construction is that new homes will be more affordable.

Oregon, Washington, and California heavily regulate real estate development independently of anything the Federal government does. The Urban Growth Boundary, for instance, prevents urban sprawl in Oregon but also drives up housing costs. That is not likely to change, and there are now emerging efforts to implement inclusionary zoning and rent control laws in some areas.

Housing Programs: Many Federal programs will be trimmed or cut in the name of deficit reduction. Some will involve housing. Major programs such as the Low Income Housing Tax Credit and Section 8 housing vouchers could be on the table. State and local programs would be affected by the decrease in Federal resources.

Immigration:

Foreign Investors: Placing additional hurdles to foreign investors coming here will soften the market.

Construction Labor: Oregon currently has a shortage of skilled construction workers, and tightening immigration policies would exacerbate that.

Consumer Confidence:

Homebuyers in economically healthy Democratic states could be discouraged about the future of the US economy and become less interested in making big purchases. In economically stagnant Republican states, however, homebuyers’ confidence and demand may rise.

Cultural Attractiveness:

Portland, and the West Coast in general, may be increasingly attractive to people moving away from areas they don’t feel as connected to as they did before election. That’s a polite way of saying that blue minorities in red states may think about moving to Portland.

Nothing will happen right away, so the immediate effect on housing should be limited. November elections occur during a normally slow part of the sales year, so any disruptive effect should be minimal. Some buyers may hesitate until they have more certainty about the direction of the Federal government; others will take advantage of that time to make great purchases. Both buyers and sellers ought to consider the impact of the higher likelihood of mortgage rates rising in 2017.