The Trump Effect?

While some expected the uncertainties of the election to keep some buyers and sellers on the sidelines, the month of October proved to be quite robust in the South Bay, showing little indications of any slowdown. Now that the election is behind us and the holidays are ahead of us, many are wondering what impact our new president will have on the real estate market.  We’ll discuss this a bit more, but first to the numbers.

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The volume of real estate sold in the South Bay in October saw an increase of 15% on a year-over-year basis, which is a combination of an increase of 15.6% in median sale price and just 2% in the number of transactions.  On a month-over-month basis, the volume of real estate sold in October was 4% higher than that in September.  The number of new listings in October shrank 9% from the month before, bringing the inventory level back down to 2.3 months.

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So what can we expect from here?  Typically, the months of November and December see a marked decrease in new listings and thus, even lower levels of inventory would not be unexpected.  Another factor that may have an impact on the housing market is obviously the new president, and politics aside, it will be interesting to see whether that will be a negative or positive one overall.

In the coming newsletters, we’ll do a review of our predictions for 2016 and put forth our outlook for 2017, but for now, we’ll talk about three of the main factors to watch for (there are too many to cover in one article), as we see what a Trump presidency might mean for the real estate market.

#1: Mortgage rates 

The day after the election, the 30-year fixed rate mortgage spiked to 3.95% from 3.77% the day before, according to the Mortgage Bankers Association (MBA).  In addition, a recently released national survey from Bankrate showed the 30-year mortgage rate breaking the 4.00% mark for a nearly half percentage point increase since Trump was elected president.  Although there are those who are thinking that the Fed may delay increasing rates in December due to “global economic turmoil”, the consensus of the majority is that the Fed Fund rates will increase.  On one hand, this could motivate buyers who’ve been “on the fence” to have a great sense of urgency about their real estate purchases.  On the other, an increase in rates means a reduction in “buying power”, which could mean that some buyers will be priced out of the market at some point, which in turn might mean an eventual reduction in demand.

#2: Loosening of Regulations

While not clear on the specifics, Trump is clearly on the side of deregulating the industry, and a loosening of regulation on lending could make it easier for consumers to obtain loans.  Moreover, in August, he said this to a meeting of the National Association Home Builders – “There’s no industry, other than probably the energy industry, that is more overregulated that the housing industry…25% of costs to build a house are regulations.  I think we should get that down to 2%.”  If construction is deregulated, even if not to the extent Trump mentioned, this could mean more affordable homes for consumers.  Easier loans (increased demand) and more housing supply may be a good thing for both buyers and sellers.

#3: Immigration Policies

The Los Angeles real estate market has benefited greatly from the fact that many foreign investors have seen the United States, and our area in particular, as a “safe haven investment.”  According to Nela Richardson, chief economist for Redfin, “Any uncertainty created around the safety of that investment, such as concerns about the ability to liquidate their assets or even occupy their homes could cause shocks to the luxury housing market in particular.”  It remains to be seen what Trump will put forth in terms of immigration and trade policies, but this will no doubt have an impact on the level of foreign investments in the South Bay and nationwide.

Having said all this, we come back to the two enduring concepts that ultimately drive the real estate market and business in general:  “location, location, location” (or “all real estate is local) and “supply and demand.”  Whatever changes may come in the new year, it’s important to remember that the South Bay remains an attractive place in which to live and thus, the continued high demand and low supply should continue to keep this market strong.

With Thanksgiving just around the corner, I am thankful for the opportunity to help my clients navigate the ever-changing landscape of the real estate market and to realize their real estate goals and dreams.  Have a wonderful Thanksgiving!

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