Will there be a housing boom in 2nd Trump term?

With any move by the Federal Reserve to cut interest rates Thursday on the heels of Donald Trump's election win, Connecticut's real estate market could get a needed booster shot.

Sustaining any such gains could hinge on Trump's promise to improve U.S. home affordability and development, but details were scant during his campaign for the White House.

Real estate markets nationally have been held back by a double-whammy of high mortgage rates and pricey construction costs. Both have limited sales and development of new homes, experts say, despite continued interest among first-time buyers paying high rents. Many people have pushed ahead with purchases despite the higher cost of carrying a mortgage, counting on their ability to refinance down the road as interest rates ease.

First-time homebuyers accounted for just 24% of all U.S. housing purchases over 12 months through June -- a record low dating back to 1981 according to surveys by the National Association of Realtors. The average U.S. homebuyer is age 56, likewise a record over the preceding four decades-plus.

On Wednesday a Sacred Heart University economist said he is tempering expectations for any speedy turnaround of the real estate market, as municipalities play the major role in the cost of housing in their policies for construction permits and property taxes.

"For better or for worse the federal government does not exercise a tremendous amount of influence over these areas, so do not expect the Trump presidency to change this much at all," said Stephen Henn, an adjunct professor of economics at Sacred Heart in Fairfield. "If the new Trump Administration can bring down inflation and reduce prices though the supply chain, such as through reducing the price of fuel, then there will be a reduction in mortgage interest rates and new construction costs. While that can produce a favorable financial environment for homebuyers, if there are continued restrictions on new building, the real estate markets will continue to be tight."

SALT cap expiration?

From the perspective of Connecticut real estate, the first major action by Trump and Congress could be inaction -- letting a law expire next year that caps IRS deductions on state and local taxes. At its outset in 2017, the law hit large numbers of Connecticut homeowners who regularly took those federal deductions.

Trump had pushed for the so-called SALT cap in his first term in the White House, but in September asserted he would not seek to renew the cap in 2025 and beyond in a post on his Truth Social media account. A SALT cap elimination would only help wealthier homeowners whose taxes and other costs exceed the $10,000 annual cap on deductions.

Among the planks in his campaign platform, Trump promised to help new homebuyers through tax incentives and other federal support -- without providing specifics. The Trump campaign linked mortgage rates to overall inflation, saying that taming inflation will help mortgage applicants see lower interest rates on new loans. The campaign also cited unspecified regulations it deems "unnecessary" that are contributing to higher housing costs.

Despite initiatives from Trump's first term in office like the Opportunity Zones program, which created tax incentives for construction of housing and commercial developments in urban areas, Connecticut did not see any groundswell in new residential development statewide. Some cities did see a boom that continued through the pandemic, including Stamford, Norwalk, Danbury and New Haven.

The Tax Cuts and Jobs Act of 2017 pushed by Trump in his first administration established a $10,000 cap on homeowners being able to take an IRS deduction on state and local taxes, including property taxes paid to municipalities. In 2022, the U.S. Supreme Court declined to review a lower-court's ruling on a challenge to the SALT cap by New York, Connecticut, New Jersey and Maryland.

To limit the impact on Connecticut homeowners whose SALT deductions exceeded the cap, the Connecticut General Assembly passed a law providing a state deduction for local property taxes for limited liability companies.

New home construction

Connecticut builders and developers filed permits for more than 21,100 units of housing during Trump's first term as president between 2017 and 2020, about 1,200 fewer than during Barack Obama's second term, according to data published by the Connecticut Housing Finance Authority. Connecticut permit filings peaked in 1990 during the first term of the George W. Bush administration, at nearly 41,300 in all.

But that was pre-pandemic, with flex-working allowances helping to spur a real estate boom in Connecticut. Prices stayed near record highs.

"Affordability is restricting the ability of many potential homebuyers from achieving their dream," Henn said. "While the new administration may be able to reduce mortgage interest rates and building costs through federal actions, the supply of housing -- a critical element in real estate markets -- requires state and local governments to move to alleviate local burdens."

Lianna Gantt, a Kent homeowner who supported Kamala Harris in the vice president's run for the Oval Office, said on Election Day that policymakers need to make affordable housing a priority, citing the struggle for many young earners in Connecticut to make enough to live here. Gantt said the projects that have been completed in Kent to date have been "a wild success" and she believes that success can be duplicated with the right support.

"Nurses, the guy who works at IGA who everybody loves, volunteer firefighters, municipal workers, teachers -- they can't live here," Gantt said. "So many communities around here, you don't have young people coming in because they can't afford to live here."