Now that Donald Trump has taken office, the Tweeter-in-Chief will have an opportunity to make good on a lot of campaign promises that could substantially affect real estate in Marin. Obviously, no one knows for sure, and Trump has shown in a very short time that he thrives on unpredictability. But here are some things to be prepared for.
1. Interest rates will go up. They already have, by a half point, and many attribute it to a shift out of bonds and into stocks in anticipation of increased infrastructure spending. The Fed helped as well, raising rates slightly in December. Most predict mortgage rates of 4.5% nationally by late 2017, so that would mean 4.75% in Marin.
2. And interest rates may go up even faster… If the proposed tax cuts go through along with a large infrastructure plan, the result could be a faster growing economy. If immigration restrictions go through, the result would be increased labor costs. Put it all together and that leads to inflation, which quickly leads to even higher interest rates.
3. But it may get easier to get a mortgage. Dodd-Frank, which was put in place and forced banks to be more selective about qualifying people for mortgages, has also been targeted for revision. Most changes discussed would make it easier to get a mortgage, simplify the process, and reduce fees for banks. This would make it easier for lots of small and mid sized banks to get back into mortgage lending, creating more options for buyers. No complaints there. But watch out if restrictions are lifted that make it easier for the big players (Wells, B of A) to return to some of the cowboy tactics employed in the run-up to the 2008 meltdown. If you read about 100% financing being offered again, it’s time to get nervous.
4. Flood insurance may get even more expensive. This is another one to watch carefully. FEMA, the federal agency that is behind flood insurance (and all other natural disasters), is now $24 Billion in debt to the US treasury. One analyst believes the “smaller government” drive may well force homeowners in flood prone areas to start paying much more to relieve this debt. Lots of homes in Marin are in flood zones, and every lender out there requires flood insurance if the home is in a flood zone.
5. Section 1031 exchanges, which allow investors to defer capital gains taxes by trading up to a more expensive property, may be a victim of tax reform. The result is potentially huge for commercial and investment properties, as tax savings are very large and if eliminated, would potentially have a chilling effect on sales.
What makes all of this even more interesting is that Trump’s wealth comes from real estate, and he has undoubtedly benefited enormously from 1031 exchanges. So though Republicans have targeted this as a way to increase revenue for the government and pay for some of the other proposed tax cuts, Trump would have an interesting decision to make if this one goes through.