Stocks Outpace Housing
Few can argue that the stock market has experienced great growth under President Trump. The "Trump Bump" consists of an approximate 20% increase in both the Dow Jones and S&P 500 during the President's first year in office.
Does the same Trump Bump translate to the housing market? A recent study by Trulia suggests that it doesn't – or at least hasn't to date. However, there are small signs within the Trulia study suggesting that the housing market may yet see strong sustained growth.
What Does A Housing Trump Bump Mean?
A Trump Bump is easy to define in the world of stocks, simply by comparing value changes during his term. It's difficult to translate that term to the housing market. What is the correct metric to use? Is it home sales, valuation, housing starts, or some combination of factors?
For study purposes, Trulia created a Housing Market Indicator by county. It includes the number of building permits per thousand existing households and the value of those building permits, growth in home prices and rents, and the change in residential vacancies. By contrasting index values in 2017 to the average value over the four previous years, Trulia was able to highlight the differences between the Trump and second Obama terms in a color-coded interactive map.
Trulia concludes that the Trump Bump is more of a slight Trump Slump, given that 1,299 counties are doing at least slightly worse under Trump while 1,021 counties are doing slightly better. However, many counties had insufficient data to be assessed, making it possible that it's really a draw or even a slight Trump Bump. In any case, it's fair to say that there is no national large scale Trump Bump in the housing market.
Signs of Life
The Trulia report did note an increase in building permits, a major positive sign. Trulia found that 62% of counties are on track to issue more housing permits in 2017 than in the average of the four prior years.
The housing market has been throttled in recent years by a significant shortage in homes. Currently there is a 5-month supply of available homes (compared to a 6-month supply in a healthy housing market). With a short supply, prices are rising and existing homeowners are staying put instead of upgrading. The duration of existing homeownership is ten years, tying the highest mark since duration data has been collected.
First-time homebuyers are really squeezed when existing homeowners don't upgrade. Fewer existing starter homes are available, and developers tend not to build affordable housing because profit margins are squeezed by high land/labor costs and regulatory burdens.
Because of this, one of Trulia's negatives may actually be a positive in the long term. While more permits have been approved, the overall value of those permits has declined. This doesn't necessarily mean more affordable housing starts are on the way – but if it does, this trend could help to kick the overall housing market into a higher gear.
An Unhelpful Congress
At this point, Congress – and to a certain extent, President Trump – are on track to shift momentum toward a housing slump in almost all aspects of policy. While the President has attempted to relax regulations in many areas, his immigration policy is threatening the housing labor supply. Meanwhile, the tax plan working through Congress is set to eliminate many incentives to homeownership.
The House plan would drop the mortgage interest deduction on new mortgages to $500,000 from the existing $1 million, and mortgage interest on second homes and home equity loans would not be deductible at all. The Senate plan ends home equity loan deductions but leaves the $1 million limit intact. Both plans raise the standard deduction in hopes of pushing fewer people to itemize, taking the mortgage deduction off the table entirely.
The Senate plan eliminates the deduction for property taxes, while the House plan would allow the deduction up to $10,000. In areas with high housing costs, the loss of this deduction could be a substantial blow.
President Trump is expected to sign the final version of this tax bill – meaning that if a Trump Bump began to form through an increased housing supply, Trump himself would likely be the one to turn it into a slump.
The housing market may indeed gather traction and experience a "Trump Bump" – although a short supply of affordable homes and a housing-unfriendly tax plan make the odds rather long. Perhaps the increase in housing permits will continue, eventually re-establishing equilibrium in the market, modulating prices, and setting the stage for sustained growth despite headwinds from poor policy choices.
Do you live in an area with a bump or a slump according to the Trulia map? Either way, your strategy should be the same. Keep tabs on the housing market in your area, both pricing and supply, as it may not match the national trends.
If you are a current homeowner, monitor the Congressional tax plans and see how the final version will affect your taxes so you can prepare your budget accordingly. If you are looking for a new home, start in advance by cleaning up any personal credit/debt situations and scour the local housing options while you do so. You will know a good deal when you see one, and will be in a suitable financial situation to act when you find one.
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