Uncertainty is the only thing that is certain headed into 2017 and the first term under President-elect Donald J. Trump. While trite, the statement also is true.
Economists are predicting economic growth, higher inflation and increased interest rates, but they’re still hedging their bets. In fact, 86.8 percent of economists surveyed told The Wall Street Journal that Trump’s election introduced more uncertainty into markets and the economy.
Megan Greene, chief economist at Manulife Asset Management, told The Wall Street Journal, “Anyone who tells you they absolutely know what will happen under a Trump presidency is probably lying.”
That being said, here is what commercial and residential real estate experts told Insider Louisville they are seeing or looking for after the election.
Residential Real Estate
Since the presidential election on Nov. 8, mortgage rates have risen.
The government-sponsored mortgage provider Freddie Mac publishes a weekly survey of mortgage rates that gives a picture of the market nationwide. On Nov. 10, Freddie Mac reported that rates for a 30-year fixed-rate mortgage, the most traditional home loan, increased to 3.57 percent from 3.54 percent. Its Nov. 17 report showed that rates jumped even higher to 3.94 percent for 30-year fixed-rate mortgages.
The uptick has caused some alarm among homebuyers and homeowners who may be rethinking the size of the mortgage they plan to take out or reconsidering refinancing.
Late fall and winter are normally a slow period for home sales and therefore mortgages, but this year is slower than usual, said Dawn Self, senior loan adviser at First Rate Mortgage in Louisville. She’s seen a decrease in mortgage application this year compared to the same time last year.
“There is just a lot of uncertainty right now,” Self said.
A month ago, a standard mortgage from First Rate Mortgage was 3.75 percent on average. As of last week, the rate rose to 4.25 percent, she said.
“We are actually treading very cautiously right now because rates can increase at any moment,” Self said. “We just have to wake up every day and see what’s happening.”
Redfin real estate agent Danielle Field said she hasn’t received many questions from buyers or sellers about potential impacts on home sales.
“People are making the buying decision based on their personal economy, what family changes they are going through,” she said.
But people are asking about interest rates, which the Federal Reserve is expected to make an announcement on in December.
General consensus among economists that The Wall Street Journal surveyed is that the Fed will announce an increase in interest rates However, at least one expert believes the Fed is more likely to postpone an increase given the economic uncertainty following Trump’s election.
“It is really an unknown what will happen,” Field said. “Oftentimes with uncertainty, rates may stay low.”
Field said she’s reviewed Trump’s plan for the first 100 days and didn’t identify anything that would impact the housing market in a big way.
However, if Trump moves forward with more long-term plans to dismantle the Dodd-Frank Wall Street Reform and Consumer Protection Act or privatize Freddie Mac and Fannie Mae, both would have major impacts on the housing market, she said.
Depending on who you talk to, those plans could bring positive or negative change.
Right now, Self’s attention is focused on Federal Housing Administration loans and subprime lending.
Investors who service mortgages are talking about “loosening of the reins” on loans for people with “less than perfect credit,” she said, adding that the subprime lending programs that contributed to the housing crisis no longer exist and finding a happy medium that allows that group of people to obtain a mortgage would be a positive overall.
Self also noted this bright spot: Mortgage rates may be increasing, but they are still low when compared to the past. In 2006, mortgage rates averaged 6.34 percent, and in the 1990s, average rates hit above 8 percent some years, according to Freddie Mac.
“We have been spoiled with these low rates for so long,” she said.
Her best advice for people looking to get a mortgage: Ignore what could happened and just do what’s best for you.
“Honestly, if someone likes the payment, if they like the rate, if they are comfortable with the payment they are quoted, they should just lock it in,” she said. “Forget about everything else and just lock it in.”
Commercial Real Estate
Similar to the residential real estate market, it’s a wait-and-see game for those in the commercial real estate market, but Reed Weinberg, president of PRG Commercial Property Advisors, said he is optimistic that the market in Louisville will continue on its positive trajectory.
“I’m not hearing any trepidation from anybody as it relates to the market here,” he told IL. “Deals still pending and in the works before the election, we woke up the next day and things were still moving forward.”
Louisville has been experiencing an economic development boom, which has grabbed the attention of out-of-town investors who now are buying or building new commercial structures locally.
“There is so much momentum,” Weinberg said. “We have hopefully got this train rolling forward and nothing’s going to stop it — that is my hope at least.”
Still, he is keeping an eye out for the Federal Reserves announcement on interest rates in December and what happens with inflation.
“Interest rates are a huge driver of what’s been driving the boom in the commercial real estate market,” Weinberg said. “What’s pretty obvious so far is since Trump has been elected there has been a spike in interest rates and treasuries, and that will have an effect.”
When interest rates rise, property values can fall, weakening returns for those looking to sell properties. While that is a possible negative for property sellers, it can also bring values back down to where there should be in places where property values are overinflated.
In a tweet, Weinberg advised commercial property owners to look at raising rental rates as inflation increases. He also told IL that inflation increases could be a positive for the commercial real estate market because it can drive people to buy real estate, which is considered a generally safe investment.
While the average person dreads the rise of interest rates and inflation, it’s not a bad thing, Weinberg said. It means the economy is doing well.
“It means wages are going up. It means people are hiring. It means growth,” he said. “At the end of the day, I think a lot of people view interest rates normalizing as a good thing.”
Weinberg said he also will be scrutinizing any proposed changes Trump puts forth regarding the tax code.
“There are a lot of tax deductions in real estate,” he said.
For example, in the tax code is a tax benefit that allows an investor, under certain restrictions, to avoid paying capital gains taxes if they sell a property and buy another. The elimination of that section of the tax code would have a negative impact on the commercial real estate market, Weinberg said.