One of the few sectors that surprised us was the energy sector. The US actively reduced its exposure to energy, which has been very eventful for real estate markets. Due to the broad decrease in energy prices in 2015, the corresponding increase in the real estate valuations has been significant. The new president will have his or her hands full dealing with the oil-producing countries because of the recent 911 decision.
Many real estate investors are starting to reduce risks by decreasing their exposure. During the last two months of 2016, the Feds have been hinting to increase interest rates. The outlook for growth had been reasonable before these talks. However, current growth indicators suggested the economy would be flat after a weak start in the new year, The outcome of rate increases will result in a significant setback to the outlook for the real estate market. How will the new president work with the Feds regarding any interest rate changes?
Real Estate investors might decide to reduce as much related risk as possible. Assessing the impact on the economy remains difficult. So far, investors have relied on the interpretation of leading indicators, but no one knows how the next president will affect them. Monthly retail sales figures, growth rates and other market indicators have been interpreted as pointing to future growth. Keep in mind, our economy has a high exposure to China. How the new president will handle tariffs and trade is still up in the air.
Trump claimed his tax plan would cut taxes for working and middle-class Americans. Independent reports have shown that under Trump's proposals, all income groups would see a tax cut on average. Nevertheless "average" doesn't mean everyone. A new analysis estimates that his plan would actually raise the tax burden on millions of low- and middle-income families. This might result in an increase for low-income rentals.
By contrast, Clinton's plan would provide some new tax subsidies for middle-income households with specific financial challenges, such as high medical or education costs. However, these subsidies wouldn't do very much to boost the economy, at least in the short run. Moreover, her tax increases on businesses and high-income households would likely reduce their incentives to save and invest. This could result in a greater demand for middle-income rentals.
We do not think that the current state of the real estate market can be accurately projected into the future. Clear discussions on the interest rate and what the new president will do have not yet been assessed. Therefore, the consequences for the real estate market still cannot be evaluated adequately. Uncertainty regarding the future and effects on the US economy could lead to a significant halt in real estate investments. Such large risks could result in a contraction in investments, and ultimately affect wealth and employment levels and consumer confidence. A decrease in earnings could be a further implication. Even though there will be a "new" government we see a significant probability of political instability. The US will face economic uncertainty for several years.