Here’s What a Second Trump Presidency Could Mean For the Housing Market

Donald Trump has said he wants to lower mortgage rates and loosen building regulations, which would make homes more affordable and increase supply. Several of his other stances would also impact housing affordability; for instance, his policies could slow immigration–which would slow homebuilding–and increase tariffs, which would result in higher rates. 

Housing affordability–or lack thereof–is an important topic for voters in the upcoming presidential election, and it will be a major issue for the next administration. While Donald Trump has acknowledged that housing affordability is a big problem, he has put forth limited details on his plans to tackle the issue. 

Trump has said he wants to lower mortgage rates and reduce barriers to build new housing to improve housing affordability. But some of his stances could do the opposite: Trump’s proposed tariff hikes could be inflationary and ultimately push mortgage rates up, and cutting back on immigration could lead to a slowdown in residential construction. Under a second Trump administration, housing would likely become more expensive and more would-be buyers would be sidelined.

These are the specific ideas Trump has pointed to, according to a Bloomberg interview and his RNC address, to address housing affordability:

• Lower mortgage rates
  • Trump sometimes hints that he would pressure the Fed to cut interest rates. But the Fed is politically independent, and it would be very difficult to alter that structure,, though some informal Trump advisers have leaked a drafted plan. Since then, Trump has said he would let Fed Chairman Jerome Powell finish his term (it expires in 2026) if he agrees with Powell’s decisions. Any breach of the Fed’s independence would have disastrous consequences for the U.S. economy in the long run.
  • Trump’s plan to address high mortgage rates is to boost domestic energy production in order to cut energy prices and lower inflation. In actuality, energy prices are volatile and the Fed purposely excludes energy costs when assessing underlying inflationary pressure. Although energy costs can affect the prices of other goods and services, energy itself  was not the primary cause of high inflation over the past few years. The primary drivers were supply chain issues, the war in Ukraine, a shift in consumer preferences during the pandemic and pandemic-era fiscal stimulus.

• Reduce regulatory barriers to building new housing, which would increase supply and dampen price growth
  • There are many regulatory barriers to building new housing, including zoning regulations, cost of permits and the cost of building according to regulations.
  • The National Association of Home Builders estimates those government-imposed regulations account for about 24% of the cost of building a home. But a lot of regulations are at the local level, where it is more difficult for the federal government to influence policy.

These are some of the potential implications of a second Trump presidency on the housing market, from the standpoint of a housing economist: 

• Trump’s proposed tariff increases would have an inflationary impact on the US, which would ultimately cause rates to be higher for longer
  • Trump is proposing huge increases on tariffs across the board (10% on all imports from all countries) and particularly on China (60% for all imports). If he is elected, there is a good chance these will be implemented quickly as the USTR has broad discretion to modify tariffs, and President Trump’s Commerce Department already did the investigations required to provide legal justification for modifying tariffs in his first term.
  • Goldman Sachs estimates this policy would increase inflation by 1.1 percentage points and therefore necessitate the Federal Funds rate be 130 bps (equivalent to 5 rate hikes from the Fed at 25 bps each). That would almost certainly drive mortgage rates substantially higher, though the precise increase is difficult to forecast.

• One cornerstone of Trump’s overall plan should he become president is cutting back on immigration, especially crossings at the southern border, which could lead to less residential construction 
  • The recent immigration surge has been a key part of the labor market’s surprising resilience in the face of the Fed’s aggressive rate hikes. Border crossings are already on the decline, but further declines under a second Trump administration would mean less labor supply, a weaker labor market, and less economic growth. Critically for housing, there would be much less labor supply for the construction industry. That means there would be less residential construction, which would put a cap on supply growth and perhaps push up home prices. 
  • The initial impact on housing demand would be minimal, as recent immigrants tend to produce little housing demand because they are largely housed in public housing or with family and friends. In the medium to long term, however, more immigrants does mean more housing demand. The recent immigration surge under President Biden means there may be more housing demand in the medium term, but if there is less immigration under a potential Trump presidency, it would bring down housing demand a bit in the future. 

• Extending tax cuts passed in Trump’s first term would also be a drag on the housing market by pushing down homebuying demand
  • The TCJA (Tax Cuts and Jobs Act of 2017) is set to expire in 2024. While President Biden would let it expire if he were still president (unsure about Kamala Harris, the likely Democratic presidential nominee), Trump is likely to want to renew it.
  • Keeping those tax cuts could ultimately drag down demand in places with high taxes, which tend to be blue states, by:
    • Reducing the tax benefits of homeownership
      • The TCJA doubles the standard deduction, which reduces the fraction taxpayers who itemize (and therefore benefit from deducting property taxes and interest on a home mortgage) from 30% to 13%.
      • It also limits the interest deduction associated with having a mortgage to the first $750,000 in principal value, down from $1 million previously.
      • Finally, it limits state and local tax deductions (SALT deductions) to $10,000, which most adversely affects blue states with higher state and local taxes. If the TCJA expires in 2025, that adverse effect would go away.
    • Pushing up mortgage rates
      • The TCJA includes regressive tax cuts (more beneficial for higher income people). Extending these tax cuts beyond 2025 has been estimated to cost $3 trillion over a decade and would most benefit those in the top 20% of the income distribution.
      • This would increase the federal deficit absent any offset in spending, necessitating greater issuance of Treasury bonds. That pushes up interest rates, including mortgage rates.
  • On the other hand, the tax cuts could still help improve supply. The TCJA also includes a provision about spurring economic growth and creating jobs in opportunity zones, which are economically distressed communities that need investment. One goal of opportunity zones was to spur affordable housing development by providing tax incentives. The jury is still out on how much opportunity zones have helped increase housing supply; there hasn’t yet been a definitive analysis. 

• Trump generally favors rolling back government regulations and interventions, which would mean mortgage lending has a smaller role in the housing market 
  • In his first term, President Trump largely gutted the Consumer Financial Protection Bureau (CFPB). Trump even appointed the OMB director to also serve as the CFPB director, in an attempt to curb the agency’s oversight in protecting consumer interests on financial matters. If Trump adopts a similar stance in his second term, mortgage lending standards could become looser, which would increase demand for housing as homebuyers find it easier to get a mortgage. But it would also increase risk in the mortgage system, and to borrowers.
  • Trump advocated for privatizing the Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac in his first term. If he pursues the same in a second term, that could result in higher mortgage rates if mortgage backed securities (MBs) are no longer seen as explicitly guaranteed by the federal government. The GSEs were brought under government conservatorship during the financial crisis.
  • If Trump continues to favor less government intervention, like he did in his first term, it’s likely that the Department of Justice would be less aggressive in investigating broker fees than it has been under President Biden. The caveat is that we don’t have precedent to draw on because broker fees were not an area of focus during Trump’s first term.

Trump acknowledges that housing is too expensive and that he wants to bring down mortgage rates and boost new construction. But many of the housing and economic policies from his first term, some of which he has mentioned recently in speeches and interviews, would make housing more expensive because they would increase mortgage rates. Additionally, the best way to address housing affordability is to increase supply, and while Trump acknowledges one solution is to up inventory, he doesn’t have a concrete plan to address it. Housing affordability would likely worsen if Trump were to become president again, which would drag down demand.