As with most elections, people generally assume that a party shift of any sort, in any branch, will have a significant impact on a myriad of laws; this mid-term election bucks that assumption as it relates to real estate. The results are mostly in, and the Democrats have effectuated an overthrow of the House of Representatives, while the Republicans retained control of the Senate (increasing their control, in fact). In general, the housing market has always been shielded from the impact of elections because supply and demand are not affected; the economy is the greatest indicator of the housing market, and the economy will remain strong regardless of who holds the House.
With that said, the long-term agenda of the controlling party can have an impact on prospective buyers’ abilities to actually purchase a home; tax reform and the interest rates set by the Federal Reserve for example. The Democratic shift may signal a rollback on the tax reforms that were recently passed by a Republican held Congress.
In November 2017, Congress was focused on President Trump’s first major economic initiative – the Tax Cuts and Jobs Act (note that the vote made along party lines, which makes the Democrat’s control over the House of Representatives important). This bill capped interest deductions on mortgages at $750k (down from $1M) on both primary and secondary homes. The Tax Cuts and Jobs Act also capped local and state deductions at $10k (previously no such caps existed). With the split in control in Congress, it is unlikely that we will see President Trump’s major accomplishment rolled back completely, but this split in power may have some interesting effects.
Financing Mortgages
Most analysts agree that that mortgage financing industry is unlikely to face a significant overhaul in the near future. The Office of Management and Budget was the first agency to suggest ending Fannie Mae and Freddie Mac’s conservatorship; throwing them both into the private market. The practical effect of this would be to force both Freddie Mac and Fannie Mae to compete with private lenders by raising their own capital. However, this move would require Congress’ approval, and with the Democratic hold in the House, they would likely require certain concessions regarding affordable housing in exchange for giving this move the go-ahead.
Middle Class Tax Cuts Aren’t Coming
One of President Trump’s campaign promises was that he would pass a new bill that would reduce the tax burdens of middle-class families by roughly 10%, but last week Mr. Trump, in concert with House Ways and Means Committee Chairman Kevin Brady, stated that the tax relief needed more time and would likely be proposed in 2019. The split of control in Congress paired with the requirement that Congress approve this proposed plan means that we are unlikely to see this tax cut in the near future.
While politics are a touchy subject, the Chernov Team understands that knowing the real estate market requires an understanding of the current climate in our government, which serves as a proxy for what bills will and will not be passed. At the Chernov Team we understand that whoever comes to the table most prepare leaves with the most, and the Chernov Team always leaves with the most.