Housing could become even less affordable under Trump

The president-elect has proposed the loosening of mortgage lending standards

New York /
Nov.November 09, 2016 01:30 PM

Housing is already too expensive for the droves of would-be buyers that are shopping in a market with limited inventory.

This so-called “new housing crisis” may worsen under the administration of President-elect Donald Trump, according to some housing economists.

Trump said little about housing policy during his campaign, according to Matthew Pointon, property economist at Capital Economics. However, he proposed to loosen mortgage lending standards in a speech to the National Association of Home Builders (NAHB) in August.

“Twenty-five percent of the cost of a home is due to regulation,” Trump said, according to the NAHB. “I think we should get that down to about 2 percent.”

Of course, what presidential candidates say on the campaign trail and what they end up doing after winning don’t always match.

But in this scenario, banks could loosen lending standards and lower the credit scores required to qualify for mortgages, Pointon said in a note Wednesday. This would boost mortgage lending in the short term, and give more people a pillar of the American dream: homeownership.

However, it could have ugly effects down the road.

“The higher demand for homes would push up house prices, and pretty soon the next generation would find themselves struggling to qualify for sufficient mortgage finance,” Pointon said. “And, as we learned just a few years’ ago, loosening lending standards can lead to dangerous housing and credit bubbles, which cause real damage when they eventually pop.”

Ralph McLaughlin, Trulia’s chief economist, said 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.

He said investors are buying US mortgage-backed securities as a safe-haven asset, pushing down yields, and reflecting confidence in the relative safety of the housing market.

“Furthermore, the Fed is likely to delay a December rate hike because of global economic turmoil,” McLaughlin said in a note. “Both effects mean short term win for borrowers, and we’ll likely see an increase in mortgage refinancing if rates continue to plummet.”

Jonathan Smoke, the chief economist at Realtor.com, did not see Trump any immediate effect on the housing market.

“Because our November elections come at one of the slowest time of the year for sales, it’s unlikely we will see much disruption to the normal seasonal pattern,” he said in a note.

“However, if the outcome has a big impact on financial markets that lasts more than a few days, we could see some disruption beyond the usual seasonal decline. Unfortunately we don’t have a comparable period in history with good data to draw any sharper conclusions.”


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