Here's Who Is Set to Cash in on a Trump Real Estate Surge
WHY YOU SHOULD CARE
Because never before has real estate had one of its own calling the shots.
By Nick Fouriezos
It was well past the witching hour the night Donald Trump won the presidency when the dapper business bro at a Tampa bar turned with his drink in one hand, lit smartphone in the other. “Well, my only regret is that I’ve got to sell all my stocks now and buy gold,” he said. But the prospect of a Brexit-like market crash (one that only briefly materialized, as we now know) didn’t bother him for long. “I’ve got to get some property here in Florida. The market’s about to boom.”
It’s not just lay investors who are looking to cash in on a Trump real estate surge. After bracing for further regulation under a Hillary Clinton presidency, many of the big-bank Wall Streeters who underwrite property loans are amazed at their good fortune: Not only do they have a shot at being considered for cabinet position, as is the case with Goldman Sachs alum Steven Mnuchin and JPMorgan Chase CEO Jamie Dimon, but the real estate mogul in the Oval Office likely will repeal or hamstring Dodd-Frank, which tightened regulations on mortgages after the Great Recession. And Trump’s proposed infrastructure bill could increase the value of properties even more in certain parts of the nation.
Can we change the dial just a little bit so people with good credit can enter the [housing] marketplace?
Lawrence Yun, chief economist, National Association of Realtors
Less rah-rah observers fear another bubble is forming from an overreliance on foreign buyers and a lack of affordable housing options. The president-elect himself has wiggled so much that he’s created uncertainty. “A lot of this is going to be speculative,” admits Bob Edelstein, Maurice Mann Chair in Real Estate at the University of California Berkeley. Overseeing a real estate market still adjusting to a brave new (post-2008) world will require a steady hand — and that might be the only qualification held by former neurosurgeon Ben Carson, Trump’s pick for secretary of Housing and Urban Development. “Why you would want to have a brain surgeon who has never had anything to do with housing policy is somewhat confounding,” says Jack McCabe, a South Florida real estate analyst. And yet … “We just can’t expect someone who comes out of the real estate world to kill the golden goose,” says Edward Mermelstein, a New York power lawyer at One & Only Realty Holdings.
Initially, the luxury markets in the trifecta of New York City, Miami and Los Angeles are expected to be the biggest winners. On election night, Mermelstein dozed off and awoke around 5 a.m. to a slew of text messages and emails from his numerous Russian clients, many of whom were encouraged by Trump’s promises to improve relations with Russian president Vladimir Putin. “Congratulations is not something you typically get from that part of the world,” he tells OZY, deadpan, and yet those clients were reaching for their pocketbooks. Before, Russian oligarchs preferred to snap up personal apartments; now they’re more open to long-term plays, buying properties to rent before eventually selling. “Russia is less concerned about economic instability than political instability,” Mermelstein says. Then again … “Russians may be psychologically boosted, but I’m not sure they have the financial capacity,” says Lawrence Yun, chief economist for the National Association of Realtors, who notes that the flagging Russian currency could depress investment in the U.S.
Russian buyers focus mostly on those trifecta cities but still only account for a fraction of the business that Chinese investors generate nationally — almost $110 billion in the past five years alone, according to a study released in May by the Asia Society and the Rosen Consulting Group. While homegrown real estate has floundered in recent years, mostly due to stagnant incomes and stringent post-recession mortgage regulations, foreign investment from these and other feeder markets like Brazil, Venezuela, Colombia and Peru have helped buoy domestic prices, says McCabe. Foreign buyers who face economic or political tumult at home protect their assets in more stable American markets. “We’ve had an oversaturation of new luxury development,” McCabe notes, “and tremendous shortcomings in new lower- and middle-price product.”
If Trump loosens mortgage restrictions, a flip could occur: Home sales might jump for the 99 percent while real estate demand sags for the 1 percent. Although Trump has yet to release a plan for affordable housing — or even speak much about it beyond promises to “rebuild our inner cities” — more easily attainable loans should help. In September, the Obama administration told cities and counties to rethink “outdated” zoning regulations that contribute to higher rents and income inequality. Trump will likely build on that suggestion, reducing the costs for builders to obtain the permits and materials, savings that they would theoretically pass on to consumers. “Currently, housing-permit fees are very expensive [and] land-use regulation is very onerous,” notes Yun, although lawmakers must avoid bringing back the Wild West days last seen in the run-up to the Great Recession. “Can we change the dial just a little bit so people with good credit can enter the marketplace?” Yun asks.
Even if the little guy does better, the overall field could still suffer. “The real estate market has only been strong for three reasons: quantitative easing, ridiculously low interest rates and foreign investors,” argues real estate analyst McCabe. “What happens if you take away any of those three?” Foreign investment is destined to wane thanks to the aforementioned oversaturation, says McCabe, and the Federal Reserve has hinted at a December rate hike that would diminish quantitative easing and increase interest rates. Translation: McCabe believes we’re looking at another recession. In this sense, Trump is inheriting an unstable situation, and any benefits from his laissez-faire regulatory system “would take years” to help, according to McCabe. Still, he believes there may be a silver lining. “The lower- to mid-price ranges in most of the country, even with a recession, will likely maintain their values or even increase, while luxury prices decline.”