Trump 2.0: Making real estate great again?

Let Trump be Trump.

A campaign staffer’s now-famous motto during President Donald Trump’s 2016 bid for president nods to the mercurial nature of the real estate mogul and former reality television star — as well as a similar slogan from “The West Wing.” And Trump himself has repeatedly said he trusts his gut over his advisers.

It’s a quality that may be the secret to the president’s success. It does, however, make it tricky to predict what direction the new Trump administration may take on policy decisions. And that’s especially true when considering what impact Trump’s second presidency could have on the real estate industry.

“We really don’t know what he’s going to do,” says Laura Lafayette, CEO of the Richmond Association of Realtors and the Central Virginia Regional Multiple Listing Service.

“I get this question from our 6,500 agents all the time about what I think is going to happen,” says Patrick Bain, president and CEO of Fairfax-based The Long & Foster Cos., one of the nation’s largest real estate and mortgage firms. “I can think of all sorts of things, but until we see some sort of bona fides coming out of the administration, there’s a lot of guessing going on.”

High rates, low inventory

For real estate professionals, the million- dollar question is, what will happen with the federal funds rate under Trump 2.0?

Both fixed- and adjustable-rate mortgages are impacted when the Federal Reserve adjusts the federal funds rate, which is the short-term interest rate banks charge each other for loans to meet reserve requirements.

In December 2024, as part of its ongoing strategy to manage inflation, the Fed cut that key interest rate by 0.25 percentage points, to a target range of 4.25% to 4.5%.

Generally, that move would have been expected to result in a drop in mortgage rates, but instead, the 30-year mortgage average hit an eight-month high of 7.13% in January. In short, economists say that was likely due to messaging from Federal Reserve Chair Jerome Powell, who said in December that the Fed would be cautious about making rate cuts in 2025 due to persistent inflation.

Experts say that despite rate cuts by the Fed, yields in the 10-year Treasury are high, and there are lingering concerns about inflation related to Trump’s threats of tariffs and geopolitical warfare.

This has added to an ongoing sluggish housing market, with sales and inventories still well below pre-pandemic levels, as homeowners who may have refinanced or purchased during the pandemic when 30-year fixed-rate mortgages dipped as low as 2.65% now are disincentivized to purchase homes with interest rates in the 6.8% to 7.1% range and sales prices climbing.

The Virginia market had 18,870 active listings at the end of November 2024, a 12% increase from November 2023, but still 34% down from 2019, when 28,615 homes were on the market.

On the campaign trail, Trump said he would bring down interest rates and opined that the president should have a say in setting the federal funds rate. The problem, of course, is that the Federal Reserve is designed to operate independently of the White House.

“The Federal Reserve has made clear that they intend to act independently, and I think they’ll continue to act independently,” says Lafayette.

Trump “can get Powell to resign,” Bain says. “I’m sure he can compel him to put a new Fed chair in, but the problem is … interest rates right now are largely driven by federal spending, and if he’s going to ramp up spending without pretty significant budget cuts, I don’t see the Fed having a lot of power to influence the [10-year Treasury yield], which is what drives mortgage rates.”

Mortgage rates decreased following the Great Recession and stayed historically low, dropping to 2.1% for 15-year fixed-rate mortgages during the pandemic. To ward off fast-climbing inflation, the Fed hiked rates 11 times between 2022 and 2023, and 30-year mortgage rates rocketed to 8% for the first time in 23 years.

The mortgage rates “put a shock on so many people,” says J. Van Rose Jr., CEO and executive chairman of Chesapeake-based Berkshire Hathaway HomeServices RW Towne Realty.

As of the first quarter of 2024, about 76% of people with mortgages had a rate below 5%, according to an analysis by Redfin, a Seattle real estate company. And there were about 1.3 million fewer U.S. home sales from spring 2022 through the end of 2023, according to a paper from the Federal Housing Finance Agency.

That said, interest rates don’t have to sink to 2.5% to spur activity in the market, according to Martin Johnson, interim CEO of Virginia Realtors, the state industry association. “It just needs to be lower,” he says.

It would take a 5% mortgage rate, Rose hypothesizes, to unfreeze the market. But Terry Clower, professor of public policy at George Mason University’s Schar School of Policy and Government, doesn’t think that’s likely any time soon.

“I just don’t see a scenario in this coming year where we see — no matter what policies are implemented — much of a change in mortgage rates,” he says. “It’s possible that they fluctuate down a little bit, but they’re not going to go to 5%.”

Regulations and tariffs

In a November editorial published in The Wall Street Journal, billionaire Elon Musk, who is leading Trump’s new Department of Government Efficiency, promised that the incoming administration will eliminate thousands of federal regulations. Residential and commercial real estate professionals like the sound of that.

“I think that if you ask the development community, they would tell you that there are some federal regulations that affect development that really don’t necessarily affect health, safety, welfare,” Lafayette says.

More regulations, Johnson points out, “leads to a higher cost of the end product that gets passed along to buyers.”

Rose points to sites in Hampton Roads that are currently off-limits to builders because they were deemed protected wetlands. “Well, two years ago, they weren’t wetlands,” he says. “Today, they’re wetlands. And I guarantee you, probably in a year and a half or so from now, they won’t be wet again, and it’s not by the climate, it’s by regulations.”
In 2020, Trump claimed to have cut nearly eight regulations for each new one enacted.

During his first term, Rose says, “we had some pretty good runs at it, because we didn’t have the same amount of hoops to jump through.”

While real estate leaders interviewed for this story are universally bullish about the prospects of Trump cutting red tape to benefit the industry, many had concerns about the potential impacts of Trump’s stated plans to impose additional tariffs on goods coming from Mexico, Canada and China.

Tariffs will drive up the cost of building materials, according to Brent Smith, the CoStar Group Endowed Chair in Real Estate Analytics at Virginia Commonwealth University. And “if materials get expensive, then it’s going to raise the cost of housing.”

R. Robert Benaicha, a partner at Richmond-based law firm Hirschler who represents national and local real estate developers, investors and lenders, is concerned that added tariffs “could create pretty massive inflationary pressures across the entire economy.” And that could lead to the Fed raising rates.

Michael Silver, chairman of Vestian, a Chicago-based corporate real estate services firm, takes a glass-half-full view, noting that additional tariffs could boost one segment of commercial real estate: warehouses. Tariffs, after all, could be reciprocated in a trade war and businesses that normally export products might have increased need for storing goods.

While tariffs could hurt the real estate industry, Trump may believe that that’s a price worth paying, points out David Bieri, associate professor of urban affairs and planning at Virginia Tech and a former adviser to the CEO of the Bank for International Settlements in Switzerland. “Under the rubric of national self-sufficiency, you can justify tariffs extremely well,” he says.

Immigration crackdown

Trump also has pledged to deport millions of undocumented immigrants, a move many experts say could also harm the real estate business.

The construction industry already has a labor shortage problem. A model created by national trade association Associated Builders and Contractors found that construction companies would need to hire more than 450,000 new workers in 2025 “on top of normal hiring” just to meet industry demand.

The Baker Institute, a Texas-based nonpartisan think tank, estimates that the U.S. construction labor force is about 25% foreign-born. Determining how many construction workers are undocumented is difficult since many of those workers operate in the shadows. The American Immigration Council reported in September 2024 that undocumented immigrants represented about 23% of all construction workers in Texas in 2022.

In general, hiring undocumented workers has kept construction labor costs down, says Robert M. Diamond, senior counsel in the real estate group at Reed Smith, a global law firm with offices in Tysons. “You could get sufficient laborers, and it was hard for them to press for higher wages,” Diamond says.

If Trump follows through on his deportation plans, construction companies may be forced to limit the number of jobs they take, according to Timothy Faulkner, president and CEO of The Breeden Co., a Virginia Beach-based real estate development and management company. “Some of these trades may not be able to work on as many jobs, so that would slow down the pipeline as well as drive up costs.”

Political candidates often say one thing on the campaign trail, Rose notes, and govern another way. He points to the people Trump has selected to be part of his administration.

“Most of these people are very wealthy businessmen and women,” he says. “I’ll guarantee you, a big part of their portfolios in life are in real estate. … I think they’re pretty smart people. They didn’t become billionaires for no reason.”
Those individuals, he reasons, are not going to act against their own self-interests.

Draining the swamp

Additionally, on Inauguration Day, Trump ordered federal agencies to return workers to the office five days a week “as soon as practicable.”

Matthew Cypher, director of the Steers Center for Global Real Estate at Georgetown’s McDonough School of Business, celebrates this policy. “Making sure we have vibrancy in our downtown is important, and I’m hopeful that that is part of what he’s endeavoring to do,” he says.

Following the pandemic, office space has been the softest part of the commercial real estate industry, according to Eric Robison, executive vice president of the Capital Markets Group for Cushman & Wakefield | Thalhimer, a Glen Allen commercial real estate firm.

The Washington, D.C., office market closed out 2024 with a 19.9% vacancy rate, down from a high of 22.4% earlier in the year. Much of that was driven by the region’s largest tenant, the federal government, which accounted for “nearly half” of the district’s decline of 500,000 square feet in office space in the second quarter of 2024, according to CBRE. That was largely due to stalls in the Biden administration’s return-to-office initiatives.

“Getting federal workers and their contractors back into the office will help the performance of a number of office buildings, specifically in the Northern Virginia area, but also in the Hampton Roads market, [which] is deeply dependent on government contractors in the military,” Robison says.

Nevertheless, Smith foresees a number of federal workers handing in their notice over this mandate, especially those who may have relocated during the pandemic when they were allowed to work remotely.

The Trump administration has also pledged to cut the federal workforce, and move some offices out of the D.C. region.

Layoffs for federal workers could free up some Northern Virginia housing supply, adding thousands of properties to active listings, according to Bain, but it probably won’t happen in 2025.

“I think there’ll be some early wins with streamlining or making the government more efficient,” Bain says. “I don’t know that that’s going to be immediately felt in the [District of Columbia, Maryland and Virginia].

There are many additional ways the Trump administration could impact commercial and residential real estate markets, too.

Northern Virginia Association of Realtors CEO Ryan McLaughlin is eager to see what Trump does with the 2017 Tax Cuts and Jobs Act, which imposed a $10,000 cap on deductions for state and local taxes. Eliminating that cap or raising it “could be beneficial for Northern Virginia,” he notes.

Other possible Trump administration moves could be as far-reaching as looking to privatize Fannie Mae and Freddie Mac or reeling in Justice Department oversight of the real estate industry.

Then there’s the psychological impact for many voters, who feel optimistic about the new president’s potential impact on the economy. After all, confidence is key for would-be home shoppers.

“If they feel like their retirement portfolios are in good shape and continuing to go up, and they feel like that nest egg is growing,” says Johnson, “and they feel like they have — or are even going to have — more discretionary income, then they’re more apt to want to get involved and want to buy or sell and buy up.”

Virginia Business Associate Publisher & Editor Richard Foster contributed to this report.