How the second Trump administration could affect the real estate market

Andrew Khouri
| Los Angeles Times

Across Southern California and much of the country, housing is unaffordable for many, whether someone is trying to buy a home or rent an apartment.

Voters’ concerns about the country’s cost of living, including housing costs, appear to have played a large role in Donald Trump’s return to the White House.

Can he fix it now?

During the campaign, the former president promised to lower mortgage rates, cut costly bureaucracy, free up federal land for development and deport millions of people in the country illegally – which the campaign said would cut costs by opening housing to citizens.

Interviews with economists and other real estate experts paint a complicated picture of how all this could play out. Some warn that parts of Trump’s agenda could make the bad situation worse, while others could help.

“It depends on what Trump does,” said Daryl Fairweather, chief economist at real estate brokerage Redfin.

A big question is mortgage interest rates.

Presidents do not set the cost of borrowing, although the policies their administration enacts can influence the price of a loan.

When it comes to mortgages, interest rates are heavily influenced by inflation expectations. A growing federal deficit can also put upward pressure on interest rates.

Supply chain issues due to the pandemic, as well as pandemic-related economic stimulus under Presidents Trump and Biden, are blamed for the rise in inflation in recent years, although the rate of cost increases has since moderated to more normal levels.

It is unclear whether this slowing trend will continue.

A Wall Street Journal pre-election poll found that most economists expected inflation and interest rates to be higher under policies proposed by Trump than those proposed by Vice President Kamala Harris.

In particular, economists believe that the former and soon-to-be re-elected president’s stated plans for sweeping tariffs and tax cuts could revive inflation and significantly increase the deficit, which could put upward pressure on the cost of home loans.

“There’s definitely a risk,” Fairweather said.

Ed Pinto, co-director of the Housing Center at the right-leaning American Enterprise Institute, said such fears may not come true.

He said he views tariffs primarily as a negotiating tactic and noted that Trump has made other proposals that could lower mortgage rates by reducing inflation and deficits. These include reducing energy costs through more fossil fuel production and appointing the world’s richest man, Elon Musk, to cut government spending.

Another important component of housing is supply – the lack of which is seen by economists as the main cause of rising rents and property prices.

Trump has called for cutting regulations that make construction difficult, but many of those rules fall under the purview of local governments and give the federal government limited ability to change course, Fairweather said.

The former president also called for new homes to be built on federal land, which Pinto said could improve affordability in western states like Utah and Nevada, where the federal government owns large tracts of land and people fleeing California have driven up prices.

Even within the Golden State, Pinto said there is likely a lot of federal land to build on.

“That would be huge for the western third of the country,” Pinto said.

Others are more skeptical. In a report from banking giant UBS last week, analysts wrote that “the federal land initiative could be challenged by a lack of existing infrastructure in these generally rural areas.”

Immigration is another wild card. Trump has promised to carry out the largest illegal deportation of people here the country has ever seen.

There were an estimated 11 million undocumented immigrants in the U.S. in 2022, and mass deportations would devastate mixed-status families and could send shockwaves through parts of the economy.

Richard Green, director of the USC Lusk Center for Real Estate, said if Trump succeeds in carrying out mass deportations, it could slightly reduce housing costs in places like Los Angeles as hundreds of thousands of people are displaced and homes sit empty.

At the same time, Green said, deportations could also drive up rents and real estate prices, as many undocumented immigrants work in construction and build the homes needed to improve affordability.

There is evidence that this has happened before. A recent study by researchers at the University of Utah and the University of Wisconsin found that stricter immigration enforcement led to less home construction and higher home prices.

Currently, both the sales and rental markets in Southern California appear to be weakening, but remain too expensive for most.

According to Apartment List, rent in LA County fell 1.7% last month compared to a year ago, but increased 7.5% compared to October 2019. According to Zillow, home prices across Southern California have fallen for three straight months but remain near their all-time highs.

What happens next is hard to know. The reason, according to Green? “It’s hard to say what policies Trump will actually implement.”