SAN FRANCISCO, Nov. 13, 2016 /PRNewswire/ -- Dr.
Selma Hepp, chief economist for the
San Francisco Bay Area's leading
luxury brokerage Pacific Union International, reports that while
President-elect Donald Trump did not
specifically refer to housing markets in his campaign, there are
conclusions that can be drawn from his stance on related
subjects.
Hepp posts regular on Pacific
Union's corporate blog, Economic Straight Talk columns
offering economic analyses related to the national and Bay Area
housing markets. The following executive summary and analysis is
from her Friday, Nov. 11
post.
Executive Summary:
- Equity markets have responded positively to President-elect
Donald Trump, as the incoming
administration is viewed as pro-growth.
- Equity markets will remain volatile since it is not clear which
campaign stances will actually become policies.
- Some of the stances — including abolishing trade agreements,
removing favorable regulations on alternative energies, and ending
the skilled-immigrants visa program — have potentially adverse
impacts on California's economic
growth
- Higher inflation is expected due to some policies and plans,
and that will put pressure on mortgage rates.
- Mortgage rates are projected to increase more than they would
have due to higher inflation and continued volatility in equity
markets, but they should still remain below 5 percent.
- For California's housing
market, removing the "walls" to new development remains critically
important for affordability and the future of the state
- For more on what's to come, join us on Wednesday, Nov.
16 at 5 p.m. PST for
Pacific Union's exclusive real estate and economic forecast
through 2019.
America has been disrupted, to say the least. But for a state
that is a cradle of disruption, the only thing Californians can do
is embrace the challenge. With Donald
Trump elected the next President of the United States, the ensuing years will be
something of a conundrum, and the future depends on how many of
Trump's campaign stances become actual policies.
After the initial shock, stock markets seemed to have responded
favorably. It appears that Trump's conciliatory speech helped calm
investors, and that his confrontational campaign rhetoric may have
been simply that. Also, pro-growth administrations are generally
viewed favorably by investors. Nevertheless, we can anticipate more
uncertainty and volatility ahead.
What Does a Trump Administration Mean for California?
Unfortunately, the impact on California is indeed uncertain and depends on
how serious Trump is about abolishing trade agreements, removing
favorable regulations on alternative energies, ending the
skilled-immigrants visa program, and deporting illegal residents.
All of these factors are critical to California's flourishing economy.
Trump's trade positions — including opposition to the
Trans-Pacific Partnership and declaring China a currency manipulator — support tariffs
on China and Mexico, and the resulting trade wars
potentially have an enormous adverse impact on California's future economic growth. So let's
hope that Trump's conciliatory speech is a truer indication of how
he feels. However, given that he outperformed in states with the
highest shares of manufacturing employment, he will need to deliver
on some of the commitments he made regarding trade agreements.
If enacted, the changes will take at least a year to ripple through
the economy. Increasing tariffs will cause inflation, which does
not bode well for U.S. consumers in general.
But the upcoming administration's apparent priorities have less
impact on California, per se. The
first order of business will be repealing Obamacare, and that will
take a while since Trump has not proposed a replacement plan. Also,
part of Trump's economic plan is cutting taxes for the wealthiest
people and corporations and generally simplifying the tax code.
Markets respond well to this, as they anticipate greater levels
of corporate investment and profits. Additionally, some
pundits argue that the proposed changes may spur productivity
growth, a concern since the beginning of the economic recovery.
What Does the Trump Administration Mean for the Housing
Market?
That's a bit of a pickle, since Trump did not mention a housing
plan during his campaign.
Housing-policy issues aside, deregulation was a centerpiece of
Trump's campaign. He has talked about dismantling the Dodd-Frank
Wall Street Reform and Consumer Protection Act, which has been
blamed in large part for severely constraining access to mortgage
credit — particularly for those with less than stellar
qualifications.
Rep. Jeb Hensarling, a
Texas Republican and the chairman
of the House Financial Services Committee, is close to Trump and
may serve on his administration. Hensarling has sponsored a new
legislation, The Financial CHOICE Act, which would roll back
significant portions of Dodd-Frank. The legislation is designed to
stimulate more private capital into the mortgage market, which
means more products but not necessarily wider access to credit for
all. The country still lacks solutions for the huge share of the
population that has been excluded from access to mortgage credit as
a result of current Dodd-Frank rules and the general
postfinancial-crisis fear of lending. And given the upcoming
administration's pro-market sentiment, it is doubtful that any
specific programs will be put in place to address this issue.
It appears that the largest impact on the housing market will
stem from an increase in mortgage rates, which have already started
creeping up. The anticipation of more volatility in the financial
markets — as well the ripple effects from greater infrastructure
spending, more private investment, and higher consumer prices
(resulting from higher tariffs) — all suggest that America may be
looking at higher interest rates than we anticipated prior to the
election outcome. During a serious affordability crisis in the
California housing market, higher
interest rates are not a welcome outcome.
Still, mortgage rates should remain favorably low and in the
range of what pundits have predicted — 4 to 5 percent. To what
extent higher interest rates will deter potential homebuyers is
hard to guess and will largely still depend on inventory and buyer
affordability ceilings. Nevertheless, because of affordability
challenges, higher interest rates may dampen home price
appreciation going forward.
So far in 2016, California's
median home price appreciated at 6 percent on an annual basis,
compared with 4 percent appreciation in the Bay Area, according to
data from the California Association of Realtors.
While those appreciation rates were not expected to remain
static, upcoming forecasts may show lower price growth than
previously projected.
Lastly, something to reflect on given the election outcome is
how California approaches new
construction. One thing Californians have in common with Trump is a
fondness for building walls — in this case walls around their
communities that prohibit new construction and restrict the amount
of newcomers who can afford to buy homes. This Trump-like attitude
toward new development may indeed be more destructive to
California's housing market than
many of the potential threats arising from his presidency. Creating
new housing units and addressing the affordability challenge are
critically important for our state's continued economic growth and
the future of our children.
About Selma Hepp
Selma Hepp is Pacific Union's Chief Economist and Vice President
of Business Intelligence. Her previous positions include Chief
Economist at Trulia, senior economist for the California
Association of Realtors, and economist and manager of public policy
and homeownership at the National Association of Realtors. She
holds a Master of Arts in Economics from the State University of New York (SUNY), Buffalo, and a Ph.D. in Urban and Regional
Planning and Design from the University of
Maryland.
About Pacific Union
Pacific Union is the San Francisco Bay Area's premier luxury real
estate brand operating in eight regions. The brokerage offers a
full range of personal and commercial real estate services,
including buying, selling, and relocation, and enjoys a
relationship with Christie's International Real Estate as an
exclusive affiliate in in the San
Francisco, Marin,
Sonoma, Napa, Alameda, and Contra
Costa counties in the state of California. Locally owned, Pacific Union operates with an entrepreneurial
mindset and unwavering commitment to deliver exceptional service
and expertise. For more information, please visit us at
www.pacificunion.com.
About The Mark Company
The Mark Company is one of the nation's premier urban
residential marketing and sales firms. Founded by Alan Mark in 1997, The Mark Company provides a
full range of core consulting services including analytics, design,
marketing and sales for urban high-rises and suburban attached
properties throughout the Western United
States. The firm is a trusted partner to global leaders in
residential development and finance, providing buyer-driven sales
and marketing strategies that produce industry-leading results. The
Mark Company has represented more than 10,000 residences and
generated over $5 billion in sales
for some of the nation's most notable and successful developments
including The Infinity in San
Francisco, Evo in Los
Angeles and The Martin in Las
Vegas. Current projects include 181 Fremont Residences and
The Harrison in San Francisco and
Cavalleri in Malibu. A subsidiary
of Pacific Union International, one of the San Francisco Bay Area's top-performing resale
brokerages, The Mark Company benefits from an enriched leadership
team, enhanced technology and added global reach through its
affiliation with Christie's International. For more
information, please visit www.themarkcompany.com.
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SOURCE Pacific Union