Managing Real Estate Uncertainty in a Time of Presidential Transition
Like it or not, our nation has selected a new President. But what does it mean for real estate in Northern Virginia?
Typically, when a new President is elected real estate stays static, as people go into analysis paralysis. Lump that in with Fed plan to raise rates, Brexit, etc., and we have a bit of understandable uncertainty, which is the catch phrase of the week. Allow me to provide some clarity in what I see ahead for real estate in our area after attending the wrap up Economic Summit for the Region with the micro effects as discussed by Nationally Syndicated Columnist Ken Harney, Dr. Lynn Fisher of the Mortgage Bankers Association, Stockton Williams of the Urban Land Institute and Dr. Terry Clower of George Mason University’s School of Public Policy.
Their discussion of macro and micro climates and how the Trump Presidency will possibly effect the region’s real estate had the same buzz word: uncertainty, with a hint of optimism. Before delving into detailed notes from the Summit, take note of a recent Inman new article, Thomas Mitchell wrote that, “Trump has used real estate himself as an investment, and although he hasn’t said much about his housing platform, what he has said indicates that he’s interested in boosting homeownership. Much of Trump’s platform has centered around deregulating the financial market in order to more fully revive it, and that alone could also give a boost to real estate.”
Trump is well known to have interesting concepts behind immigration and reform policies, and could try to make it more difficult to find loans for the immigrant population, but as a major real estate investor, he may try to make it easier to build. Key words here “he may.” No one knows yet for certain, because Trump and his campaign have never discussed his policy on housing, except for a possible dissolution of HUD.
Just as our style of government has a series of checks and balances to prevent a concentration of power in the government, real estate prices in NOVA are subject to stabilizing forces under the law of supply and demand. And in NOVA, this is great for buyers/sellers. We live in a strong area…. We have one of the richest in economically viable areas in the Nation, and we have a very low unemployment rate coupled with a very high income rate. Dr. Fisher discussed an average of 188,000 people added to area payrolls month over month. The job growth is in our region is healthy, viable and, in a word, good. Interestingly, there are more jobs than qualified people to fill them in NOVA (3.6% wage growth year over year.) She also noted an upward pressure on wages for these jobs in our region.
Looking forward, the top job categories in our region are:
With steady job growth, comes steady employment in the region. The main concern Dr. Fisher identified was the expectation that Fed would raise rates, and she notes that her team don’t expect rates to go over 4.5% in the next year. She also expects 10-11% in the next year in new home sales growth, which is a phenomenal growth in most NOVA neighborhoods considering we’ve been seeing 9% in many and 16-22% in some areas.
The funding of construction financing is difficult in some instances; however, with new types of lending programming on the forefront, and with more consumers being educated by the smaller local lenders, there will continue to be steady growth. With that said, there may be near-term shifts with the new presidency.
Ken Harney reiterated the concept that happens with every new presidency: people will move in and move out. High figureheads will look for high-end housing with plush amenities like the McLean, Potomac or Great Falls sort of locales. Appointees and party changeovers bring out the buying, selling and renting of real estate across the board. New jobs will be made. Industry shifts. They won’t be “draining this swamp” they will, in fact, be filling it.
Harney also reminded the Summit attendees that there are plenty of opportunities for the pro-business minded.
Dr. Clower was quick to share that if Trump does what he says he plans to do, the pro-business side of the region will benefit and there will most certainly be growth. If Trump lowers the tax basis, then we will likely see massive near-term growth.
On the topic of building, one of the panelists posited a thought about who will build if Trump implements his immigration reform? What will happen to the already low housing stock? Interesting thoughts, yes. It will definitely change the dynamic of our already low inventory and a new labor force will need to be trained somehow and fast! In NOVA, we need 410,000 homes annually with 210,000 in the low to moderate income range. We need to continue to meet our absorption rates. The fact remains that the “if this, then that” scenario is still playing out. No one knows what is going to happen next. We all just know that we have a new president coming down the pike.
Of course, there remains uncertainty over what will come next. But that’s nothing new – one of life’s few certainties is change (oh and taxes…). In the end, it’s virtually impossible to determine how the markets will react over the next few months or years based on the election of any presidential candidate. We are fortunate to live in a real estate market that has weathered its share of national market swings, and has always come out stronger than ever.
The bottom line is that while we just don’t know what the future may hold (no one does), we can still make reasonable, rationale plans based on the data at hand. Indeed we must. Real estate, like our country, is bigger than a single person, a single party, or a single state. There will likely be unknowable events – political and otherwise – that will push markets up and down in a hurry along the way. But even still, I believe in our country and in Northern Virginia. If you’d like to chat, please give me a call, shoot me a text, or send me an email. I’d love to hear from you.