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President Donald Trump has begun his second term. All week, Inman is diving into the administration’s housing policies — from the privatization of Fannie Mae and Freddie Mac to mounting antitrust issues. Read the first story in the series HERE, and join us Wednesday for part three, outlining his plans for HUD.
The economy was arguably the deciding factor in the 2024 presidential election, with exit polls revealing that six in 10 Americans believed the economy was ‘not so good or poor’ despite the metrics.
During former President Joe Biden’s term, the U.S. was one of only three G7 countries to have a stronger real gross domestic product growth than its pre-COVID level. Biden’s administration also kept unemployment rates near a 50-year low, added 16.6 million new jobs in four years, and stimulated the highest annual increase in real wage growth since 2021.
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He also scored major healthcare policy wins to reduce medical costs, including capping insulin at $35 and out-of-pocket prescription costs at $2,000.
But an October Gallup poll found voters trusted Trump’s ability to control the economy (54 percent) more than former Vice President Kamala Harris (45 percent), as he promised to bring manufacturing power back to the U.S. through hefty tariffs, extend the 2017 Tax Cuts and Jobs Act and eliminate federal income taxes, reduce Social Security and Medicare system spending, and drive down gas prices by repealing Biden’s environmental policies to control oil drilling.
Economists have been split on the outcome of Trump’s vision, as the potential benefits of some policies might be wiped out by others.
“Trump’s economic policies offer promise and risk,” Rice University Center for Public Finance director John Diamond said on Jan. 16. “Policies to reign in the growth of government, increase efficiency and cut regulations have the potential to move the budget towards a sustainable path and increase long-term growth.”
Who gets the final say on inflation?
Inflation has hit the real estate industry with a one-two punch as consumers struggle with sticky housing costs and mortgage rates.
Trump has promised to slow inflation at record speed; however, he has no direct control over the Federal Reserve and its seven-member committee. But, that hasn’t stopped him from expressing his desire to have more influence on the Fed’s decision-making process.
“I think I have the right to say I think you should go up or down a little bit,” Trump told Bloomberg in October. “I don’t think I should be allowed to order it, but I think I have the right to put in comments as to whether or not the interest rates should go up or down.”
Fed Chairman Jerome Powell has been resistant to Trump’s urgings, with the leader recently announcing the Fed has reduced the number of planned rate cuts in 2025 from four to two — thwarting the president-elect’s promises to quickly slash inflation during the first year of his second term.
“With today’s action, we have lowered our policy rate by a full percentage point from its peak and our policy stance is now significantly less restrictive,” Powell said after announcing the year’s final rate cut on Dec. 18. “We can therefore be more cautious as we consider further adjustments to our policy rate.”
Even if the Fed stuck to its four-cut plan for 2025, it doesn’t mean Trump would’ve had an easier time making good on his inflation promise. When the Fed cuts the short-term federal funds rate — or the amount that banks have to pay short-term to borrow money from each other on an uncollateralized basis — the hope is those cuts make their way to consumers with lower rates on loans, like mortgages.
However, this year has proved that doesn’t always happen.
The best-case scenario
The Fed has cut the federal funds rate three times this year, with each cut bringing the rate down by a quarter percentage point. Still, mortgage rates have been resistant, dashing hopes of reaching the five-percent goalpost that economists and real estate leaders say will stoke buyer and seller activity. The lowest rate for 30-year fixed-rate conforming mortgages was 6.03 percent on Sept. 17; however, rates have been on the climb since, reaching 6.85 percent on Nov. 20. The rate for 30-year fixed-rate mortgages rose 21 basis points after the Fed’s Dec. 18 rate cut, reaching 7.18 percent.
In a best-case scenario, Realtor.com Chief Economist Danielle Hale said mortgage rates will level out around the 6 percent mark in 2025. Although 6 percent isn’t as low as economists would like, Hale said it should be enough to give consumers a little more wiggle room to make a move.
“We expect them to end [2025] just above 6 percent, and average about 6.3 percent across the entire year. Altogether, we think that’s going to be a net equal for monthly payments,” she said during NAR’s economic forum. “The cost of buying a home will probably stay about flat, a little higher, depending on which month you’re looking at. But income gains are going to help increase or improve affordability somewhat marginally.”
Although there’s still a way to go on mortgage rates, the Fed’s approach has led to promising personal consumption expenditures (PCE) price index results. In November, the PCE index increased 2.4 percent year over year and 0.1 percent month over month. The core PCE, which excludes food and energy, increased 2.8 percent year over year and 0.1 percent month over month. Both results, economists said, offer comfort amid heightening economic anxiety.
“Sticky inflation appeared to be a little less stuck this morning,” E-Trade Morgan Stanley Managing Director Chris Larkin told CNBC. “The Fed’s preferred inflation gauge came in lower than expected, which may take some of the sting out of the market’s disappointment with the Fed’s interest rate announcement on Wednesday.”
Powell has Trump’s hands tied for the next year; however, his term with the Fed will end in 2026 — opening the door for Trump to choose a Fed chair that will be more agreeable to a more aggressive approach to lowering inflation. Trump economic advisor and U.S. Treasury nominee Scott Bessent has teased the idea of using a “shadow” Fed chair to undermine Powell in 2025, as he and Trump work on their 3-3-3 targets: increasing growth to 3 percent, cutting the budget deficit to 3 percent of gross domestic product and raising U.S. energy production by three million barrels of oil per day.
“Mr. Trump has a mandate to reprivatize the U.S. economy through deregulation and tax reform,” Bessent wrote in an op-ed for The Wall Street Journal shortly after the election. “That will be essential to restarting the American growth engine, reducing inflationary pressures, and addressing the debt burden from four years of reckless spending.”
The catch-22 of Trump’s tax policy
Economists have been torn on how Trump’s policies will shake out, as his proposed policies could counteract each other.
For example, Trump said he’ll reduce the corporate tax rate increase from 21 to 15 percent and renew the 2017 Tax Cuts and Jobs Act, which lowered most individual income tax brackets, increased the standard deduction, eliminated personal exemptions and limited itemized deductions, such as state and local tax (SALT) deduction, mortgage interest deduction (MID), and charitable contribution deduction.
On the business side, TCJA lowered the corporate income tax from 35 percent to 21 percent and increased the expensing cap from $500,000 to $1 million. Trump’s tax policy yielded mixed results for homebuyers and sellers, but largely benefited real estate investors and business owners.
NAHB Chief Economist Robert Dietz said homebuilders are bullish about Trump’s tax policies, and real estate investors are predicting a “Trump bump” once he takes office in January.
BH Group President and founder Isaac Toledano told Fox News Digital that real estate investors are excited about Trump’s second term, and have already experienced gains thanks to a post-election stock surge.
“I think that the fact that Donald Trump is our next president and people understand that he is pro-business, his agenda as far as real estate, I think that a lot of the smart money will continue to be invested in real estate,” he said. “This is really good news. I think that the momentum is about to change big time.”
“I think that there are more billionaires today than yesterday, and I think those people will take some of the chips off the table, will take some of the profit,” he added. “And if they are smart, they will continue to invest in real estate.”
However, Realtor.com Senior Economist Ralph McLaughlin said Trump’s approach to taxes could make it impossible to reach his inflation goals.
“Anything that’s going to put money in consumers’ pockets, whether it’s tax breaks, tax credits or other types of stimulus, does have the potential of driving prices higher, which would mean higher mortgage rates,” McLaughlin told NBC News. “There aren’t a lot of policies that the president has at his disposal that can really lower rates. Other than policies that might be damaging to the economy itself.”
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