Elections have consequences, and early signals from the incoming Trump Administration suggest new policies are ahead that will greatly impact real estate values in 2025 and beyond.
Republicans control the presidency, the House, and the Senate because of success in the 2024 elections. There is a two-year window of opportunity for them to enact policies and programs before the 2026 midterm elections. That’s when the entire House and one-third of the Senate face re-election, and power in Washington could shift again.
Housing and mortgages are central to what goes on in Washington. That’s because real estate is a major part of the economy. According to the National Association of Home Builders, real estate represented 16.2% of our gross national product (GDP) in the third quarter. Roughly 85 million households own real estate, millions more would like to be owners, and many owners and tenants vote. Such numbers assure that housing is an important concern on Capitol Hill.
Homeowners are generally doing well. In October, according to ATTOM, the median sales price of single-family homes and condos was $360,500. That’s up 5% from a year earlier, an average increase of more than $16,000. What’s been good for sellers has been a hurdle for buyers. Because of higher prices and increasing monthly costs, 2024 sales were sluggish and likely to total only four million units for the year, according to the National Association of Realtors (NAR) – a very low number. October’s existing home inventory was 19.1% higher than a year earlier, not what the real estate industry would like to see.
So what might change in Washington? Let’s look at several potential issues and how they might impact real estate.
SALT Reform
The Tax Cuts and Jobs Act (TCJA) of 2017 was passed during the first Trump administration. One major provision, the so-called SALT tax, is set to expire after 2025, but will it be extended?
In basic terms, taxpayers today cannot write off more than $10,000 for state and local taxes (SALT). If this provision of the TCJA expires, “all state and local property taxes and income taxes (or sales taxes in states without income taxes) will be deductible,” according to the Brookings Institute.
It made sense for many taxpayers to simply take the standard write-off after the 2017 tax changes and they did. IRS figures show that 32.7 million tax returns claimed a home mortgage deduction in 2016 versus 11.5 million in 2021 when the SALT deduction was limited.
The SALT tax was aimed at high-cost – and Democratic — jurisdictions – think of New York, New Jersey, Illinois, Maryland, and California. Representatives and senators from those states will back an end to the SALT tax limitation, a big group that includes both Republicans and Democrats. Such support will emerge because the 2026 midterms are not far off and both parties want to capture additional House and Senate seats – and keep the ones they’ve got.
President Trump supports repeal, stating in September that he will “turn it around, get SALT back, lower your taxes, and so much more. I’ll work with the Democrat governor and mayor, and make sure the funding is there to bring New York State back to levels it hasn’t seen for 50 years.”
An end to the SALT tax would make residential real estate ownership in high-cost states more attractive by increasing owner tax deductions. In addition, owners have long been able to deduct mortgage interest and property taxes while tenants have not. An end to the SALT cap would bring back that distinction and give potential buyers another reason to own.
Selling Federal Land
Both the Trump and Harris campaigns favored the sale of federal land to create new residential building space. Property sales would address one of the major reasons for soaring home prices, the lack of buildable lots to increase the housing supply.
The federal government is the Nation’s largest landowner, with more than 615 million acres in its inventory. Opening even a tiny portion of this inventory for residential use could significantly reduce development costs.
Federal sales in the past have included the conversion of military bases for civilian use and the sale of reclaimed Superfund sites. The new approach, if adopted, will most likely resemble the recent sale of 20 federal acres to Clark County in Nevada.
The land in the Las Vegas metro area was made available for $100 per acre to the county government and will be used for the development of 210 owner-occupied, single-family, entry-level homes. Ownership will be open to households earning $70,000 or less.
The Clark County transaction is a model for future federal land sales, properties that can only be used for a dedicated purpose such as sales to first-time homebuyers. The buyers would benefit from minimal land costs, allowing homes to be constructed at a low price.
First-time Buyer Assistance
Potential first-time buyers have been leaving the real estate marketplace, and that’s a problem.
Price increases — even small ones — can force potential buyers from the marketplace. The National Association of Home Builders estimated in late 2024 that “a $1,000 increase in the median new home price ($425,786) would price 140,436 U.S. households out of the market.”
First-time buyers are the group impacted most directly when mortgage rates change. That’s because they have had no opportunity to accumulate equity through mortgage amortization, rising home prices, or both. With less down, they face higher loan amounts and bigger monthly payments.
According to NAR’s 2024 Profile of Home Buyers and Sellers – first-timers represented just 24% of all buyers, the lowest level recorded since information was first collected in 1981.
First-time buyers are important from a value perspective because they are the market for sellers with entry-level homes. Those sellers cannot easily move up without strong buyer demand. In effect, a lack of first-time buyers radiates through much of the real estate marketplace, slowing sales and reducing the pressure for higher prices.
Getting more first-time buyers into the marketplace will not be easy. Many potential purchasers simply see real estate ownership as unobtainable.
“The vast majority (86%) of current renters in the United States say they would like to buy a home — but can’t afford one,” according to a CNN poll conducted last July by SSRS.
“Among those same renters who can’t afford to buy a home right now, 54% think it’s unlikely they’ll ever be able to, the poll found.”
Many potential buyers are likely qualified to purchase but don’t know it.
Fannie Mae’s latest Mortgage Understanding Study, released in mid-2024, found that “Approximately 90% of consumers overstate or don’t know the minimum required down payment for a typical mortgage.” Only a third are familiar with down payment assistance programs, two-thirds don’t know about minimum credit score requirements, and nearly half cannot explain debt-to-income (DTI) requirements.
Things could be different, however, if the government reduced the down payment and insurance costs for mortgages insured by the FHA, a program widely used by first-time buyers.
Lower FHA Costs
Most FHA borrowers can purchase with 3.5% down. To get this low-down payment they pay two forms of mortgage insurance: a 1.75% upfront mortgage insurance premium (the upfront MIP) and a .55% annual mortgage insurance premium (the annual MIP).
The money collected from premium payments is set aside in a reserve fund. It’s available to pay lender claims if a borrower defaults on an FHA loan. The FHA is required to have a cash reserve equal to at least 2% of the outstanding loans it insures, what’s called the capital ratio. However, with few recent claims and rising home values, the fund is doing remarkably well. In September, it held reserves worth $172.8 billion and had a capital ratio of 11.47%.
In other words, the FHA reserve account held five times the required capital reserve. With so much money in hand, HUD has several options to ease first-time buyer cash requirements.
- It can lower the upfront MIP.
- It can reduce the annual MIP.
- It can reduce both MIP requirements.
- It can reduce the necessary down payment.
- It can keep the MIP payments where they are and drop the down payment requirement to zero.
Reducing FHA costs to help first-time buyers is likely to have bipartisan support. It doesn’t increase the federal debt or take income from any existing programs, plus it gives elected officials a housing accomplishment to discuss in the next election cycle.
Revamping The Fed
The Federal Reserve has a central role in the economic system, in part because it can move the federal funds rate up or down. This is the rate paid by banks to borrow money overnight. The prime rate moves up and down as the federal funds rate changes and rates for cars, personal loans, and other forms of credit move in turn.
It seemed certain just a few months ago that 2025 would be marked by lower mortgage rates and strong sales. The Fed lowered the federal funds rate by .50% in September, the first reduction since March 2020. Many thought mortgage rates would also ease and that home sales would increase as a result.
But mortgage interest levels went up. The Fed announced the rate drop on September 18th. Weekly mortgage rates, according to Freddie Mac, went from 6.09% for the week of September 19th to 6.84% in late November, hardly the good news many expected. The monthly cost for principal and interest to borrow $300,000 went from $1,816 to $1,964 in just a few weeks. That’s a difference of $148 a month or $1,776 a year – enough to force many potential buyers out of the market.
The Fed is supposed to be politically independent, but what if that wasn’t the case? In early November, Politico’s Victoria Guida asked Fed Chairman Jerome Powell at a press conference if he would resign if President Trump asked him to go before his term expired. Powell’s answer was a flat “no.”
The Fed does not set mortgage rates, but an early end to Powell’s term as chairman would likely result in higher-than-expected interest rates. The reason? Mortgages are priced based on marketplace supply and demand and tend to move with the 10-year Treasury bonds. The financial markets do not like risk and disruption, and an effort to replace a Fed chairman before the end of their term would likely discomfort bond investors. Look for Powell to finish out his term.
Higher mortgage rates than expected – or mortgage rates more-or-less steady at the levels seen in November – will lead to less affordability relief in 2025, but it may not matter in terms of home values. That’s because huge numbers of households have been unable to buy. An estimated 1.5 million units are needed to close the underbuilding gap according to Freddie Mac, meaning unmet demand is likely to maintain prices or push them higher in most metro markets.