One year on: How has Donald Trump impacted investment in US real estate?

This month marks one year since Donald Trump's election as President of the USA. Looking back over the last 12 months, has he impacted investment in real estate?

White House, Washington DC, USA

One year since Donald Trump’s election, new research from suggests that there has been no negative impact from the Trump presidency on international interest in US real estate, with the country remaining the most popular destination on in 2017 for the second year in a row. Michigan, Florida, Texas, Pennsylvania, Illinois and New York have been the most sought-after states among investors.

The figures suggest that despite the initial surprise of the 2016 result, it appears to be business as usual for foreign investors, with enquiries staying high on the international portal. There have been a number of potential obstacles since Trump’s election, particularly his controversial proposals of a travel ban, which could have deterred tourists. With the US economy growing by 3 per cent for the last two quarters in a row, though, the financial world continues to run smoothly, with the National Association of Realtors forecasting GDP of around 2.2 per cent across 2017, rising to 2.7 per cent in 2018, buoyed by job growth and residential construction.

Unchanged fundamentals

One possible reason that Trump has not had a major impact upon real estate trends is that he has not changed much during his first year in office: his travel ban has not come into force and Obamacare has also not been repealed, leaving two of his major campaign promises unfulfilled.

Another is that the fundamental market conditions remain unchanged for real estate: there are still not enough homes, which underpins ongoing house price growth, while shortage of supply in many areas is leaving buyers with little choice. Low mortgages, though, remain a driver of activity, with unemployment also low, encouraging buyers to house hunt.

Pending sales have slipped year-on-year in five of the last six months, according to the National Association of Realtors, as new listings fail to keep up with what’s sold.

A taxing future?

A new tax reform, meanwhile, could deter homeowners, as the GOP’s Tax Cuts and Jobs Act proposes slashing the $1 million limit for home mortgage interest deduction by half. While the $500,000 cut-off point is high, the affordability of homes has changed over the last decade, with expensive markets such as San Francisco only offering a small one-bedroom condo for that sum, compared to other, cooler markets, where the same price can fetch a four-bedroom home.

Some professionals are concerned that the measure will discourage home buying, although the House bill still has to pass through the Senate, so it may yet be changed. Daren Blomquist, a Senior VP at Attom, on the other hand, suggests that the deduction is only the “icing on the cake”, rather than a major factor in people becoming homeowners. Only those itemising their taxes, meanwhile, can receive the reduction.

Another rule that could be changed by Trump’s policy is the tax charged to sellers when they sell their primary residence. Sellers are currently eligible to keep up to $500,000 of the proceeds from their transaction, if they have lived in the home for two of the past five years – a threshold that will be increased to five out of the past eight. Realtors are concerned that this could make it harder for people to move up or down the housing ladder.

International demand

It is yet to be seen whether this reform will be implemented, and what impact it may have upon the housing market. A year into Trump’s presidency, though, and buyers and investors are certainly still active. The National Association of Realtors estimates that existing-home sales will finish at a pace of 5.47 million this year, the best result since 2006 and a modest improvement (0.4 per cent) from 2016. In 2018, sales are forecast to expand 3.7 percent to 5.67 million. The national median existing-home price is also expected to rise by around 5.5 percent this year and next year.

While tight supply may weight on sales and, in turn, prices, construction is also enjoying positive performance: housing permits have risen in 2017, partly attributed to a post-election surge in builder confidence. With smaller homes and townhouses increasingly the focus for developers, the new homes are also likely to help bridge the gap between renting and homeownership for first-time buyers.

As for investors, there is a shifting focus to less explored markets, with demand rising for property in Philadelphia, in particular.

“With a population that has grown over 10 per cent between 1999 and 2014, the high demand for accommodation in Philadelphia is starting to put the city on the map,” comments Jay Walsh, Chief Business Officer at ABC Capital Investments, LLC. “Vacancy rates are below 3 per cent and house prices have risen 10 per cent in the last year – a dream combination for international investors.”

“We have seen overseas interest remain strong consistently throughout the last year,” Walsh adds. “Despite some political turbulence following the election of President Trump, and on-off controversy surrounding his potential travel ban, the USA’s recovering property market continues to offer unrivalled opportunities for investors in a stable economy.”

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