By Gavin Blair, CEO
Gridlock is expected to come from the November elections, in which Democrats seized a majority in the House and Republicans tightened their control of the Senate. For one, the housing market, unlike the stock market, does not make sudden moves based on events like elections. Buyers will still purchase homes and sellers will still list their houses.
However, longer term public policy can play an important role, as we have learned with actions by the Federal Reserve, starting three years ago when it began raising interest rates and more recently in the last month. The tax reform that passed last year impacted the real estate industry.
Tax reform rollback?
Last November, much of Washington was focused on the first major piece of legislation from the Republican Congress: the Tax Cuts and Jobs Act, which passed in December along party lines.
The tax reform bill included some major changes for real estate, including capping mortgage interest deductions at $750,000 for both primary and secondary residences (down from $1 million previously), and capping state and local tax deductions at $10,000 (no previous cap). It also allowed pass-through entities and S-corporations — which some real estate agents and brokers may qualify as — to claim a 20 percent deduction on their business income. There is unlikely to be a major roll back of this policy anytime soon.
Flood insurance will likely not be reformed
The National Flood Insurance program, an ailing 49-year-old insurance plan has had short term renewals but needs a permanent fix. The bill has been stuck in the Senate since late last year - ever since the GOP-led House voted in favor of the bill 237-189 despite significant opposition from coastal Democrats, who believe premiums on high-risk properties could skyrocket under the reform initiative.
Under the terms of the “21st Century Flood Reform Act,” premiums, which on average cost homeowners $650 annually but can spin out of control in coastal regions, would be capped at $10,000. Additionally, new mapping technology authorized in the new legislation would reduce rates by calculating the true risk of flooding farther inland.
The mortgage finance system is unlikely to be overhauled entirely. Under a Trump administration plan to end the conservatorship of Fannie Mae and Freddie Mac, first floated over the summer by the Office of Management and Budget, both government-sponsored entities would be tossed into the private market, requiring each to raise their own capital and compete with traditional lenders. For such an endeavor to pass muster in Congress, Democrats would likely demand key concessions to buoy affordable housing. Under Trump’s proposal, HUD, which would take responsibility of all affordable housing objectives, would be untethered from the traditional mortgage market.
Executive orders by the President are expected to continue, such as moves to further wipe out punitive financial regulations and easing environment enforcement.