To be fair to Donald Trump he has had his hands full during his first few months in office and has not been able to fulfil all of his manifesto promises as yet. One area where there are great expectations is the real estate sector. We all know Donald Trump has expertise in this particular field and a history which is as long as it is chequered. While he recently “simplified the tax situation” regarding real estate investment, many are now asking when will he help first-time buyers?
Property market back to pre-crash levels
While the US real estate market is now back to pre-crash levels it is worth noting that homeownership is now back to levels last seen in the 1960s. As bizarre as it sounds, while demand for property continues to grow, homeownership is falling. There is one simple reason for this, a lack of funding for first-time buyers and concern about the economy and household incomes.
Recent data suggests fewer millennials are acquiring their own homes compared to past generations. This is causing more people to look towards the rental market which increases demand for rental property thereby pushing house prices higher and higher. Do we have the makings of a vicious circle as seen in countries such as the UK?
Reduced government influence
While in theory there is nothing wrong with reduced government influence, as Donald Trump has mentioned on numerous occasions, but where it is currently substantial it will need to be reduced over a prolonged period of time. One area which is dominated by the US government at this moment in time is the US mortgage industry. In light of the 2008/9 mortgage crisis the government was forced to take over Fannie Mae and Freddie Mac and offer an array of government backed insurance programs. A report in 2014 confirmed that 70% of new residential mortgages were in some way shape or form backed by the US government. So, the government will need to be very careful when reducing its influence.
Ironically, it is only the Federal Housing Administration which really accommodates first-time buyers with less than perfect credit histories – offering down payments as low as 3.5%. Was it not low down payments and chequered credit histories which caused the US mortgage market collapse back in 2008/9?
First-time buyers need help
The US is not the only country in which first-time property buyers are struggling to cover deposits and future mortgage payments. The US government has been extremely proactive in recent times in this particular area but Donald Trump seems to prefer the “free market” approach and reduced government influence. As we touched on above, it is all good and well reducing government influence in “free markets” but the extent to which the US government influences mortgages at this moment in time will need to be reduced over a prolonged period of time – otherwise a funding gap will emerge.
The simple fact is that without first-time buyers, the new blood of any real estate market, the structure of the market will change dramatically. Those who would normally look to acquire their own property would be forced to rent, demand for rental properties would increase and this would push house prices even further out of the reach of first-time buyers. It is an extremely difficult situation but one which needs to be addressed using not only Donald Trump’s experience in the real estate investment market but also his knowledge of the first-time buyer market.