Overall Economic Outlook
In terms of economic growth, Goldman Sachs upgrades the economic forecasts. If Biden wins, there will be a boost in the short-term economy, with a much bigger stimulus package, ending global trade wars, spending money on infrastructure, climate, health care, education. Biden is likely to hike the corporate tax rate which is not good news for the rich and also for stock markets.
Goldman is pointing towards Trump’s very strong anti-global trade policy that has led to trade wars with China and other countries, hence calling a status-quo on economic outlook with Trump.
Will Mortgage Rates Be On A Rise?
We have seen the mortgage rates at their record low in recent years. With intention to support privatization of Freddie Mac and Fannie Mae under Trump administration, popular 30-year fixed-rate mortgage rates and fees could possibly increase. Biden being against this privatization, may assist in keeping the rates stable. However, his high tax rates for rich, more spending on public transit and infrastructure could make mortgages a little more expensive. With Biden supporting affordable housing and first time homeowners and Trump’s investor focused policies, either way, we possibly will get to see the lower interest rates for a very long time
From Homeowner’s Perspective
Election Year: Real Estate Impact
Typically, in any election year, home prices gain is reduced by 2% because of reduced availability of deals, slower pace of the market, and buyers holding off due to instability. The demand however does not die it just gets pushed until the next year. Also, November shows slowdown 10% typically and 15% in election year.
The usual slow-down seems to be getting overpowered by COVID-19 in year 2020, an anomaly in many ways, particularly on single-family housing. The interest rates are still almost at rock bottom keeping buyers motivated. We have not seen significant impact this year in the month of November as well.
Home Values and Affordable Housing
Trump ended the program implemented by the Obama Administration to promote fair housing irrespective of caste, race, and color. This will possibly increase the home values- worsening the conditions for affordable housing. Biden intends on reinstating the rule which will make housing affordable in wealthier neighborhoods and will support lower-income groups. As for the real estate, this will possibly slow down the home values in suburban areas. This may directly impact the value of your home.
What does it mean to your home value?
The good news is Real Estate has been consistent under both democrats and republicans. Since 1979, NCREIF property index returns have averaged better than 8.5% annually under various administrations. There might be slight impact due to affordability of the homes, but these changes will take time to reflect.
From Investor’s Perspective
Impact On The 1031 Exchange
The 1031 Exchange provides a significant tax deferral on capital gains when selling a real-estate investment and reinvesting in another ‘like kind’ investment. Biden intents to drastically limit 1031 exchanges to those making more than $400k/year but with no intention of terminating the scheme. On the contrary, Trump backs 1031 exchanges to support investors, him being one to gain profits from this policy.
Opportunity Zone Program
The Opportunity Zone (OZ) program, for developments in economically distressed areas, provides tax deferral on a step-up basis for all types of capital gains, not just Real Estate, including stock market gains. Biden wishes to reform the OZ program, by having investors/ investment companies publicly disclose their investments, which would mean more scrutiny. The current status of the program is highly favored by Trump. He plans to expand the areas defined as Opportunity Zones and providing more incentives for economically distressed communities.
Impact on Commercial Real Estate
Now finally, let’s look at commercial real estate, including multifamily. Trump is pushing to privatize Fannie Mae and Freddie Mac, if this goes through, it will raise interest rates for commercial lending including multifamily and that’s going to hurt the markets. Biden’s policy against this privatization, will help the rates to remain stable, thus not impacting the Commercial Real Estate as such.
Trump is likely to continue to favor investors by expanding the OZ programs, cutting
capital gains, providing tax credit for bringing jobs back to the US that could indirectly create employment for blue-collar workers. But the trade slowdowns that could worsen the Federal Trade deficit would hurt the lower middle classes’ housing.
Biden administration plans to significantly boost the American Dream of owning a home with expanded access to affordable housing, down payment tax credit of up to $15,000 for first-time homebuyers, and lenient federal and lending policy. Opportunities are likely to take a hit as he aggressively taxes the rich to increase capital gains, reduce 1031 and add scrutiny to OZ program. This could possibly cause surge in sales in the coming 12 months.
Overall, whoever wins, a sane and stable decision is required in any matters related to real estate as the one most important fact to be kept in in mind is, any policy will take at least a year to be implemented, and takes even more time for us to start seeing the impact in the market. So, don’t go rushing and selling your properties at an unsuitable price deal. It’s wise to wait and watch!
Meanwhile don’t forget to do your part and vote if you haven’t already!