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President Donald Trump has begun his second term. All week, Mr. Inman has been digging into the administration’s housing policy, from the privatization of Fannie Mae and Freddie Mac to the growing antitrust issues. Read the first article in the series here. Part 3 on Wednesday will outline his plans for HUD.
The economy will undoubtedly be a deciding factor in the 2024 presidential election, with exit polls showing that 6 in 10 Americans think the economy is “not that good or bad” despite the indicators. It became clear that there was.
During former President Joe Biden’s term, the United States was one of only three G7 countries to achieve real gross domestic product (GDP) growth above pre-pandemic levels. The Biden administration also kept the unemployment rate near a 50-year low, added 16.6 million new jobs over four years, and stimulated the highest annual growth in real wages since 2021.
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It also achieved major health policy wins aimed at lowering health care costs, including capping insulin at $35 and copays for prescriptions at $2,000.
But an October Gallup poll found voters had more confidence in President Trump’s ability to control the economy (54%) than former Vice President Kamala Harris (45%). Trump has promised to restore manufacturing power to the United States through steep tariffs and extended the 2017 tax cuts. Lower gas prices by enacting jobs legislation, eliminating the federal income tax, cutting spending on Social Security and Medicare, and repealing Biden’s environmental policies that regulate oil drilling.
Economists are divided over the outcome of Mr. Trump’s vision, as the potential benefits of some policies may be offset by others.
John Diamond, director of Rice University’s Center for Public Finance, said on January 16 that “Trump’s economic policies have promise and risks.” “Policies that reduce government growth, increase efficiency, and reduce regulation have the potential to move budgets in a sustainable direction” to promote long-term growth. ”
Who has the final say on inflation?
Inflation is delivering a one-two punch to the real estate industry as consumers struggle with persistently high housing costs and mortgage rates.
President Trump has promised to curb inflation in record time. However, he does not have direct control over the Federal Reserve System or its seven-member committee. But that hasn’t stopped him from expressing a desire to have more influence over the Fed’s decision-making process.
“I think I have the right to say it should go up a little bit or go down a little bit,” Trump told Bloomberg in October. “I don’t think I should be allowed to dictate, but I do think I have the right to comment on whether interest rates should be raised or lowered.”
Federal Reserve Chairman Jerome Powell has resisted President Trump’s calls, and he recently announced that the Fed would reduce the number of rate cuts it plans to cut in 2025 from four to two, but only in his second year in office. blocked the president-elect’s promise to quickly reduce inflation in his first year. semester.
“Today’s action brings the policy rate down one percentage point from its peak and makes the policy stance significantly less restrictive,” Powell said after announcing the final rate cut of the year on Dec. 18. “We are cautious as we are considering further adjustments to policy interest rates.”
Even if the Fed sticks to its plan for four rate cuts in 2025, that doesn’t mean it will be easy for President Trump to meet his inflation pledge. When the Fed lowers the short-term federal funds rate, the amount banks have to pay in the short term to borrow money from each other without collateral, the hope is that the reduction will be passed on to consumers at lower loan rates. . Like a mortgage.
But this year proved that that doesn’t always happen.
best case scenario
The Fed has cut the federal funds rate three times this year, each cut cutting the rate by a quarter of a percentage point. Still, mortgage rates remained resilient, dashing hopes of reaching the 5% target that economists and real estate industry leaders say will stimulate buyer and seller activity. The lowest interest rate for a 30-year fixed rate conforming mortgage was 6.03% on September 17th. However, interest rates have been on the rise since then, reaching 6.85% on November 20th. After the Fed’s Dec. 18 rate cut, 30-year fixed-rate mortgage rates rose 21 basis points to 7.18%.
Daniel Hale, chief economist at Realtor.com, said that in a best-case scenario, mortgage rates would level off at around 6% in 2025. While 6% is not as low as economists would like, Hale said it is enough to provide mortgages to consumers. There’s a little more room for action.
“We expect them to end [2025] Just over 6%, with an average of about 6.3% for the entire year. “Overall, we believe the monthly payments will be substantially equal,” she said at NAR’s Economic Forum. “The cost of buying a home will probably be about the same or slightly higher, depending on which month you look at it. However, income gains will contribute to a small increase or improvement in affordability. .”
Although there is still room for improvement in mortgage rates, the Fed’s approach has resulted in encouraging results for the personal consumption expenditures (PCE) price index. The PCE index in November rose 2.4% year-on-year and 0.1% month-on-month. Core PCE excluding food and energy increased by 2.8% from the previous year and by 0.1% from the previous month. Economists said both results offered reassurance at a time of heightened economic uncertainty.
“This morning, the sticky inflation seems to have eased a little bit,” Chris Larkin, managing director at E-Trade Morgan Stanley, told CNBC. “The Fed’s desired inflation measure was lower than expected, which may alleviate some of the market’s disappointment with the Fed’s interest rate announcement on Wednesday.”
Mr. Powell has Mr. Trump’s hands tied next year. But his term at the Fed ends in 2026, opening the door for Trump to choose a Fed chair more likely to agree to a more aggressive approach to lowering inflation. President Trump’s economic adviser and Treasury nominee Scott Bessent has hinted at the idea of using a “shadow” Fed chair to undermine Powell in 2025, creating a 3-3-3 with President Trump. (to increase the growth rate to 3% and reduce the budget). Raise the budget deficit to 3% of gross domestic product and increase U.S. energy production by 3 million barrels a day.
“Mr. Trump has a mission to re-privatize the American economy through deregulation and tax reform,” Bessent wrote in a Wall Street Journal op-ed shortly after the election. “It will be essential to restart America’s growth engine, reduce inflationary pressures, and address the debt burden of four years of reckless spending.”
Catch-22 of President Trump’s tax policy
Economists disagree about how Trump’s policies will change, as the measures he proposes could cancel each other out.
For example, President Trump said he would reduce the corporate tax rate increase from 21 percent to 15 percent and update the 2017 Tax Cuts and Jobs Act. The law lowers most personal income tax brackets, increases the standard deduction, eliminates personal deductions, and limits itemized deductions. State and local tax (SALT) deduction, mortgage interest deduction (MID), charitable contribution deduction, and more.
On the business side, the TCJA lowered corporate taxes from 35 percent to 21 percent and raised the expense limit from $500,000 to $1 million. President Trump’s tax policies have had mixed results for home buyers and sellers, but primarily benefited real estate investors and business owners.
Robert Dietz, chief economist at NAHB, said home builders are bullish on President Trump’s tax policy and real estate investors are anticipating a “Trump bump” after Trump takes office in January.
Isaac Toledano, founder and president of BH Group, told FOX News Digital that real estate investors are excited about President Trump’s second term and are already reaping profits thanks to the post-election surge in stock prices. he said.
“The fact that Donald Trump is the next president and the fact that he is pro-business and the public understands his policies on real estate means that a lot of the smart money will continue to be invested in real estate. “I think so,” he said. “This is really good news. I think this momentum is about to change in a big way.”
“I think there are more billionaires today than there were yesterday, and I think they’re going to take some of the chips off the table and some of the profits,” he added. “And if they’re smart, they’ll continue to invest in real estate.”
But Ralph McLaughlin, senior economist at Realtor.com, said President Trump’s approach to taxes could make it impossible to reach the inflation target.
“Anything that puts money in consumers’ pockets, whether it’s tax cuts, tax credits or other stimulus, can cause prices to rise, which can lead to higher mortgage rates,” McLaughlin told NBC News. means,” he said. “There aren’t that many policies at the president’s disposal that could actually lower interest rates, other than policies that could hurt the economy itself.”
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