Within hours of being inaugurated on January 20, President Donald
Trump issued an order that, while gaining little attention
compared with many of his executive actions thus far, would
ultimately affect the bank accounts of hundreds of thousands of
Trump moved to immediately
suspend a fee reduction for Federal Housing Administration
loans that the Obama administration authorized on January 9.
Essentially, the suspension of FHA rate cuts stopped a reduction
in mortgage insurance premiums for FHA-backed loans, although the
cuts hadn’t yet gone into effect, said Ralph McLaughlin, chief
economist for Trulia.
The fee was supposed to be cut
by 0.25 percentage points of the total amount borrowed. To
put that into perspective, had the Obama administration’s order
gone through, Americans with $200,000 mortgages would have saved
about $500 over the course of a year, while those with $400,000
mortgages would save about $1,000.
Reactions were, of course, mixed. Some
critics said Trump’s order would take money out of
Americans’ pockets, especially low-income homeowners. Others,
citing the more than $1 trillion in mortgage loans insured by the
FHA, said the move would protect taxpayers in the event of
another housing crash, NPR reports.
But what does it mean for you? Business Insider
spoke with three experts to cut the jargon and discern how this
policy — and Trump’s administration as a whole — would affect
homebuyers this year. Here are five things to know.
1. The status quo hasn’t changed …
The first thing to know is that the fee cuts Trump eliminated
hadn’t been enacted yet, so Trump’s order didn’t affect those who
already held mortgages.
“It’s not going to make it more expensive because the cut was
never put into effect, so nobody actually got to pay lower FHA
fees,” Greg McBride, chief financial analyst at Bankrate.com, told
Business Insider. “I think what’s important here is that nothing
actually changed, and therefore nothing changed back. The
original cut in FHA fees was announced, but not implemented.”
2. … but a horde of new homebuyers could be left out of the
While much remains the same for current homeowners, eliminating
the rate cut could keep potential buyers who were hoping to
capitalize on it from being able to afford a home.
Association of Realtors believes that this is an important
policy measure to make sure that housing continues to be
accessible,” Danielle Hale, managing director of housing research
at the NAR, said of the fee cut. “According to our estimates,
roughly 750,000 to 850,000 homebuyers will face higher costs
without that cut going into place, and if we don’t get the cut,
we expect 30,000 to 40,000 new homebuyers will be left on the
sidelines for 2017.”
In other words, though the order wouldn’t derail current mortgage
holders from continuing to make their existing payments, it could
potentially deter those on the fence about buying a home.
“The estimates are roughly $400 to $450 in annual savings, which
may seem small, but for some people that makes a difference
between being able to comfortably buy a home and maybe deciding
to rent for a couple more years,” says Hale, referencing the
predicted annual savings for families with a mortgage between
$160,000 and $180,000.
3. The effects of the Trump administration will likely play out
along party lines.
Trulia predicts that individual political viewpoints will also
affect Americans’ feelings toward purchasing homes as the current
political climate settles in for the long haul.
“In a recent
survey we conducted at Trulia, we found that President
Trump’s surprise victory gave Republicans a renewed sense of
optimism towards the housing market, while Democrats turned
pessimistic towards housing in 2017.
“That said, we think that American homebuyers in economically
healthy blue states will likely be rattled and more hesitant
about the future [of] the US economy, which will curb their
interest in making large investments. In economically stagnant
red states, on the other hand, homebuyers will likely feel a
surge of confidence that could bolster demand.”
4. Mortgage rates are expected to rise but might face volatility.
McLaughlin, McBride, and Hale all predict that mortgage rates
will increase in 2017.
“Inflation is a little bit higher, the Federal Reserve will
continue boosting short-term interest rates, and the expectation
is that the economy will benefit from government stimulus, and
that growth will pick up,” McBride says. “All of those would
argue for mortgage rates being higher a year from now than they
However, it’s important to note that although mortgage rates will
likely be higher overall in a year, they will remain
volatile throughout, due to the uncertainty of what’s to come,
particularly concerning Trump’s plans for financial regulations
and tax reform.
“President Trump still hasn’t made clear what his plans are
for financial regulation, but as those decisions come out, they
may push rates out further as investors either flock to or away
from US bonds,” McLaughlin says. “We’ve already seen a slight
increase in mortgage rates since Trump took office, partially
driven by an increase in bond yields for mortgage-backed
5. Home prices are expected to rise, as well.
As long as the US doesn’t hit another recession, home prices are
expected to go up.
“Primarily because the Trump administration has hinted at Dodd-Frank reform, which could
eventually loosen credit and make it easier for homebuyers to
borrow, while also implementing tax reforms that could put more
money in the pockets of homebuyers,” McLaughlin says. “These
factors combined may cause demand for housing to rise, driving
Hale notes that though prices will continue to rise, the increase
will likely plateau. While there’s been an influx of new
potential home buyers in the last few years, construction hasn’t
kept up with demand, causing prices to spike. But the NAR
predicts new building on the horizon.
“We’ve had years of limited inventory and we expect that builders
will respond to the rising home prices that we’ve seen by
increasing building in the years ahead,” she says. “That should
help prices slow down, but they will continue to rise: Our
forecast for 2017 has them up 3.9%, and 3.2% for 2018, so slower
than they’ve grown recently, but continuing to rise.”
Although politics and economics go hand-in-hand at times, Trump
is not the only factor influencing the housing market. Inflation,
buyer demand, Federal Reserve rates, and numerous other factors
are at play when mortgage rates and housing prices rise and fall.