The election and real estateReal Estate Wednesday, November 23rd, 2016
After 18 long and agonizing months, the presidential election is finally over. For this alone we can rejoice, although half of the electorate is unhappy. It is interesting to prognosticate on what effects the ultimate decision will have on so many things, including our favorite topic, real estate. Of course, this is all speculation, as we have no idea what will actually occur. So with that caveat, here goes.
The very fact that we can’t predict what will happen is a cause for instability. Money and instability have an inverse relationship. Markets favor stability; knowing what is around the corner generally makes more people comfortable about investing. So we may see some holding back until a trend becomes apparent. Potential buyers of real estate may decide to wait a bit to feel a bit safer.
Prices of real estate are dependent on supply and demand and as we have reported, the supply of properties in our Southern California market is seriously depressed. There just isn’t enough to meet even a weakened demand, and builders have not been stepping up to get new homes in the ground.
In the latter regard, we may see some relief if the Republicans now in power take steps to ease regulations on building. Our new president-elect, a builder himself, though in the luxury category, has made a remark that 25 percent of the cost of a home is due to regulation. He’d like to get that down to about 2 percent. It remains to be seen whether that wish becomes a reality.
Other factors affect the ability of buyers to purchase a home. Beyond supply and demand which largely determines price, we have mortgage interest rates, and the general ability of borrowers to obtain loans. If the Democrats had assumed power, their promise to reduce student loan debt might have made it possible for millennials to become homeowners. With Republicans in power, they may have to wait a bit longer to amass down payments and get their disposable income up to snuff.
There’s also the possible effect of immigration policy on real estate. If immigrants are deported or choose to leave, demand will be depressed and supply enhanced. And then, what about changes in tax policy?
It looks like the Republicans want to reduce tax rates and this especially for high income earners. This should bode well for home purchases, except for the fact that the wealthy tend to seek real estate in areas known for their scarcity. So a change in tax policy may, in fact, have little or no effect on real estate purchases.
Our new president-elect is a real estate guy, and probably knows what is involved for builders and developers. He may have the best intentions, but relief for lower and middle income seekers may not percolate down.
As with most discretionary purchases, the greatest determinant of market boost is the confidence of the buyer. If Americans like what they see in their new president and his party, they will move forward to seek new homes. And if the demand is there, and especially if a path is provided, builders will find a way to provide new inventory.
It’s a wait-and-see moment. Let’s wish us all well in the coming New Year.
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