What Does a Second Trump Administration Mean for New Home Buyers?

Donald Trump's victory in the 2024 presidential election has sparked considerable speculation about its potential impact on the housing market, particularly for new home buyers. As the nation grapples with a persistent housing affordability crisis, Trump's proposed policies could significantly shape the landscape for those looking to purchase their first home. So, what does a Trump administration mean for new home buyers? NewHomeSource takes a closer look and spoke to Kevin Oakley, managing partner for Do You Convert? for additional insight.

Supply-Side Focus

One of the cornerstone promises of Trump's housing plan is to boost the supply of homes, which experts widely agree is crucial to addressing the current affordability crisis, according to Newsweek. Trump has pledged to open up portions of federal land for large-scale housing construction, aiming to increase the inventory of available homes. This move could potentially lead to more options for new home buyers, especially in areas where land scarcity has been a significant factor in driving up prices. Additionally, Trump has expressed a desire to reduce "unnecessary" housing regulations that add to the cost of new homes. By streamlining the development process, this could theoretically lead to faster construction times and lower building costs, which might translate to more affordable options for first-time buyers.

Interest Rates and Mortgages

According to NPR, Trump has made bold claims about lowering mortgage rates, suggesting that under his administration, rates could return to as low as 2%. While presidents don't directly control mortgage rates, their policies can influence them indirectly. Trump's approach to combating inflation could play a role in determining future interest rates. However, it's important to note that some economists warn that elements of Trump's economic proposals might actually exacerbate inflation. In June 2024, 16 Nobel Prize-winning economists, including such names as George A. Akerlof, Sir Angus Deaton, and Claudia Goldin, signed a letter expressing deep concern for the U.S. economy under a Trump administration. For new home buyers, the prospect of lower mortgage rates is undoubtedly appealing, as it could significantly reduce monthly payments and make homeownership more accessible. However, the reality of achieving such low rates in the current economic climate remains uncertain.

Tax Policies and Incentives

During a speech he gave to the Economic Club of New York City in September, Trump suggested lowering the corporate tax rate from 21% to 15% for companies that produce in America.

“A lower corporate tax rate could stimulate housing activity, boost investment and potentially lead to increased housing market activity,” Mark Hamrick, Washington bureau chief and senior economic analyst for Bankrate, commented after Trump’s remarks. “Among the potential ripple effects could be a rise in construction, more supply and lower home prices.”

While not directly targeted at homebuyers, this policy could stimulate housing activity and potentially lead to increased market activity.

Immigration and Labor Supply

Trump's stance on immigration could have significant implications for the housing market. His proposed "mass deportation" plan, if implemented, would likely impact the construction industry, which relies heavily on immigrant labor. The National Association of Home Builders estimates that up to a third of residential construction employment consists of foreign-born workers. A reduction in the construction workforce could lead to slower building rates and potentially higher construction costs, which might be passed on to new home buyers. This could offset some of the benefits from other supply-boosting measures.

Regulatory Changes

The Trump administration is expected to continue its efforts to reduce regulations across various sectors, including housing. This could include changes to fair housing rules, as suggested in the Project 2025 policy document. While the full implications of these changes are not yet clear, they could affect housing availability and affordability in certain communities.

The applicable section of the 922-page document was authored by Ben Carson, Trump's former Secretary of Housing and Development (HUD). According to Carson, Project 2025 would seek a “reset” for HUD that would “include a broad reversal of the Biden administration’s persistent implementation of corrosive progressive ideologies across the department’s programs."

Project 2025 proposes the repeal of any climate change-related initiatives and terminology from official HUD policy and guidance, changing policies to keep non-U.S. citizens from participating in HUD programs, and a second repeal of the Affirmatively Furthering Fair Housing (AFFH) regulation. Trump axed AFFH in July 2020 but Joe Biden reversed Trump's decision shortly after taking office as president in 2021.

Kevin Oakley believes Trump could make significant headway for potential home buyers if the incoming president can cut through deregulation and zoning laws' constant red tape.

"I think the biggest impact would be if [Trump's] administration takes on deregulation and adjustments to zoning laws. Working with over 90 builders across North America, the biggest issue I hear from owners and senior leaders is getting land through the entitlement process without incurring ever larger impact fees, and the unnecessary requirements that erode affordability," Oakley said.

Market Dynamics

Trump's victory has already had some immediate effects on financial markets. The day after the election, yields on 10-year Treasury bonds rose, indicating that mortgage rates may continue to trend upward in the near term. This could present challenges for new home buyers looking to enter the market soon.

Potential Outcomes for New Home Buyers

For those looking to purchase their first home under a second Trump administration, the landscape presents both opportunities and challenges:

• Increased housing supply could provide more options and potentially lower prices in some areas.

• Promises of lower mortgage rates, if realized, could make monthly payments more manageable.

• Reduced regulations might speed up construction and potentially lower costs.

• However, labor shortages due to immigration policies could offset some of these benefits.

• Changes in fair housing rules might affect the availability of homes in certain communities.

Oakley anticipates affordable housing to be made a priority but based on Trump's first presidency, new home buyers may not want to hold their breath.

"I expect there to be a multi-pronged effort to make housing more affordable," Oakley said. "Reduction in costs (deregulation and potential opening of Federal land for development), enlarged first-time buyer credits, and an attempt to influence mortgage rates to move lower."

"During [Trump's] first term, the administration proved a bit inept at quickly enacting legislation, so these efforts - if they happen at all - will not appear as quickly as many hope."

However, Oakley does hold some optimism for potential home buyers under Trump's administration when compared to the outgoing president, Joe Biden.

"The Biden administration really only seemed interested in increasing credits or giving funds directly toward the purchase of homes - I'm optimistic that the new administration will look at the problem from multiple angles," Oakley said.

It's important to note that many of Trump's proposed policies would require congressional approval and could face challenges in implementation. Additionally, local and state regulations play a significant role in housing markets, which can limit the impact of federal policies. As the specifics of Trump's housing policies continue to emerge, prospective new home buyers should stay informed about both national trends and local market conditions. Working with knowledgeable builders can help navigate the changing landscape and make informed decisions in what promises to be a dynamic housing market under the new administration.