2024 in Review and a Look Ahead to 2025: What Trump Has in Store for the Housing Market
In general, an article reviewing the housing market’s current year and the one around the corner would focus on the usual metrics of supply, demand, income, inflation and mortgage rates. But when a former President like Donald J. Trump manages to pull off one of the most dramatic political comebacks in U.S. history, what becomes even more critical is how his proposed policies — should they come to fruition — might change the trajectory of not just the typical housing market metrics, but also where these housing units are built for sale and rental, and where.
To be sure, 2024 has been a frustrating year for buyers and sellers of existing homes due to elevated prices and the lock-in effect of low mortgage rates during the pandemic. Sales of previously owned homes this year through September were below the same period of 2023, and are on track to hit their lowest annual levels since 1995, when the population was about 30% smaller. Although September’s pending home sales rose 7.4% year-over-year to their highest level since last March, those contracts are increasingly falling out of escrow before making it. Several factors contribute to this trend, such as buyers getting cold feet or facing difficulties selling their own homes, waiting for the results of the November election, hoping for a drop in mortgage rates, encountering problems getting hazard insurance, or sellers with inadequate contingencies finding it difficult to find new housing after a planned sale.
Consequently, low inventory levels of just 4.3 months at September’s sales rates are keeping potential sellers in place for reasons beyond the lock-in effect of low mortgage rates alone.
Although home builders have been able to benefit from limited existing home supply, they continue to have their own challenges not just related to higher mortgage rates but also tight lending conditions for funding new development and construction. As of October, while homebuilder sentiment tracked by the NAHB did rise by two points to 43, that’s still well below the last peak of 90 in the late 2000s but still a marked improvement from 34 last November. This same October survey also showed the share of builders cutting prices at 32% with an average reduction of 6%. At the same time, the use of sales incentives — especially mortgage rate buy-downs — was reported by 62% of respondents, thereby also impacting profit margins. While months of inventory for new homes did fall to 7.6 months in September, look for these price cuts and incentives to continue until inventory falls further.
Looking ahead to 2025, it’s hard to predict the direction of inflation, buyer demand and mortgage rates until we receive more details on the policies the incoming Trump Administration intends to impose. If he governs as he did during his first term, we can certainly expect lower corporate taxes and an extension of lower personal income taxes coupled with a national debt that continues to grow.
However, if he goes through with his campaign promise to levy widespread tariffs — especially on goods imported from China and Mexico — that would likely re-ignite inflation that could lead to higher interest rates. If he proceeds to deport up to 20 million undocumented immigrants en masse — who make up an estimated one-quarter to one-third of the construction workforce — then that would not only be inflationary but also provide serious headwinds to homebuilding at a time when it’s already difficult to attract skilled labor. In addition, much-needed Low-Income Housing Tax Credit affordable housing units could also be at risk if investment flows to these credits decline due to a lesser need for credits by investors. Established in 1986, the program now accounts for over half of all federally supported low-income housing nationally and has helped to build 3.6 million units. Moreover, with rent restrictions now expiring for many of these units nationwide, the housing crisis — especially for persons at risk of becoming homeless — could worsen significantly without alternative funding sources in place.
While this news may spell an opportunity for developers and builders who can come up with new solutions of interest to the incoming Trump Administration — especially in Opportunity Zones — for now we must wait to see which policy proposals are enacted — and which are sidelined.
Column by Patt Duffy
