Two Cents - Insights Brought to you by Vectra Bank

After a long and divisive presidential election campaign, the U.S. awoke the morning of Nov. 9 to what many considered surprising results. Donald Trump, real estate mogul and media personality, appeared to be the winner in the Electoral College, making him the first President-Elect of the U.S. ever without any previous public service experience. This fact, combined with the unprecedented tone of his campaign message, has left much room for uncertainty. But given the policy stances he has made clear so far, experts and analysts have begun to make predictions on the future of the nation's economy in general, as well as for the real estate market.

Just as with any sector of the economy, U.S. real estate could stand to gain or lose through the implementation of broad fiscal and monetary policy mandated by the executive branch. However, many market analysts have expressed confusion and uncertainty regarding what the actual economic outcomes of a Trump presidency would look like. In its monthly survey of economists, The Wall Street Journal wrote that the group generally expressed a degree of "cautious optimism" for the nation's financial fate, although many questions remained unanswered as of yet.

Interest rates, inflation to rise

If experts had to reach a consensus on the next two years, inflation and interest rates are two key measures that may be more certain. Given Trump's stated policies to cut taxes and increase spending to stimulate growth, economists speculate that gross domestic product acceleration will increase by 2018. To balance these moves out, though, higher interest rates and inflation would likely result. According to The Journal's panel, inflation could rise to 2.4 percent by 2018, which would be its highest level since the recession began in 2007. While higher inflation tends to result in better rates of return on savings accounts and investments, it also usually brings higher priced goods, which would consequently push home prices up.

Many of these broad economic predictions stand to affect the housing market by way of mortgage interest rates, home prices and other measures. Since Trump's previously stated policy goals have been interpreted as requiring greater federal debt spending, interest rates will need to rise in kind to make this debt attractive to investors. Therefore, as these key rates move higher, so too will the price of an average home loan. Immediately after Election Day, average mortgage rates jumped around a quarter of a percentage point, according to MortgageNewsDaily.com, and continued to inch upward. However, the average 30-year fixed-rate loan remains much lower than its 45 year average of 8.26 percent - as of Nov. 14, the rate was tracking a 3.85 percent mean.

Regulation reduction

Interest rates are not the only ways in which the new administration's policies will impact lenders, borrowers, builders and the rest of the real estate market. President-elect Trump, along with the Republican majority in the U.S. House of Representatives and the Senate, have made clear their desire to reduce government regulation throughout industries including the financial market. In an interview with The Journal three days after the election, President-elect Trump expressed his disdain for measures such as the Dodd-Frank Act, which had many implications on mortgage lenders.

What's in the cards for the U.S. economy going forward? At this point, it's anyone's guess.

Recent regulatory changes in the mortgage market have led banks to shy away from making risky loans. Most mortgages now approved by banks are considered standard, "vanilla" packages, and only borrowers with the best credit history and financial credentials can expect to be approved. Many in the lending industry have also seen banks become more cautious in the last eight years as the threat of government regulation has brought greater fines and more frequent prosecution.

Many anticipate looser regulation could actually work both ways for mortgage lenders. On the one hand, less paperwork and more straightforward rules would theoretically streamline the process of creating a loan, getting approved and purchasing a property. This could free up financial institutions to focus less on compliance, as well as offer a broader range of mortgage products to more consumers. Borrowers with less-than-stellar credit might also find it easier to be approved for a mortgage.

On the other hand, less strict regulation could also invite similar issues seen on a large scale in the run-up to the housing crisis. With more risky consumers in the market, the chance of foreclosure will rise in tandem. This could present problems for lenders who don't protect themselves adequately.

Nothing is certain as the last full year of an incumbent administration comes to a close, but many are already placing their bets. However, if the unpredictable election was any indication, it might be unwise to faithfully rely on these early projections.

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