The End Of The Line For The Hot Real Estate Market?

By Sabrina Biehl Published Dec 14, 2016 09:02 am Updated May 31, 2019 07:09 pm

Rising rates, looming Ben Carson HUD appointment create murky reality

Is real estate’s nice little ride over? The combination of rising rates and fear around new housing leadership has some experts worried. Let’s break it down.

Mortgage Rates
Nobody was under the illusion that historically low rates could last forever, but the sharp rise since the election have some people worried. A few years of super-low rates helped the market recover and thrive; now, “The average 30-year fixed mortgage rate is 4.02 percent, up 6 basis points over the last week,” said Bankrate. “A month ago, the average rate on a 30-year fixed mortgage was lower, at 3.34 percent.”

Going from the threes to the fours crosses two important barriers – financial, and psychological, potentially hampering a real estate market in its most vulnerable time of the year.

“For those with more of a financial cushion, the increase in monthly payments is just frustrating; for those on the edge of ownership, it can mean no deal,” said CNBC. Although no one (that we know of) can accurately predict the future, experts expect rates to climb further, especially if the Federal Reserve raises the “benchmark short-term rate again next month – with more hikes to follow next year,” said the Los Angeles Times.

Rising rates “could slow home purchases, pinching “Americans with added costs as they borrow money, they said. “Even a slight increase in rates could disrupt the pace of borrowing, partly because the low rates had enabled many Americans to qualify for loans that otherwise would have been out of reach, Scott McGann, a finance lecturer at San Diego State University’s business school, told them. Agreed Mark Zandi, chief economist at Moody’s Analytics: “If you’re in the market to buy a home, it’s not so good.”

Ben Carson

President-elect Trump’s November 22 tweet fueled speculation that retired neurosurgeon and former Republican Presidential candidate Ben Carson would be appointed Secretary of Housing and Urban Development (HUD). “I am seriously considering Dr. Ben Carson as the head of HUD,” he said. “I’ve gotten to know him well – he’s a greatly talented person who loves people!”

A formal acceptance is forthcoming, but, in the meantime, there has been rampant discussion about the appointment that Housingwire says is a done deal, much of which surrounds concern that “liking people” does not equip one to run a federal agency that oversees an annual budget of approximately $50 billion. Fodder about Carson’s rejection of the secretary of Health and Human Services position – which he explained by saying he was “unqualified” – despite the fact that medicine, not housing, was his chosen field – only further underscores the concern.

“If he accepts the spot, Carson will have a key role in crafting and ushering through policies that could affect the housing market long beyond the next four years of President-elect Donald Trump‘s administration,” said Realtor.com. “And those policies will also play a role in determining the futures of the millions of Americans who depend on HUD, ranging from the poorest Americans seeking subsidized housing to first-time buyers shopping for mortgages.”

While the past two HUD secretaries had significant housing and urban renewal experience, it’s not unheard of to tap a housing outsider for the job. Steve Preston, who held the post in 2008–2009, came from a finance background as the administrator of the government-run Small Business Administration. Still, Carson’s lack of relevant experience has given housing industry experts pause because of musings over what it means, empirically, in policy world. “If [housing was at] the top of some policy agenda, I would think [Trump] would want to put someone in charge who has a real record in dealing with these issues,” Rachel Meltzer, an urban policy professor at the New School in New York, told Realtor.com.

What’s perhaps most troubling to experts are the comments Carson has made thus far about the agency and his overall take on housing issues, which foretell some sweeping changes ahead.

The Daily Beast notes that Carson once referred to Fair Housing as “communism.” In the same 2015 op-ed published in The Washington Times, he called fair housing policies “mandated social-engineering schemes” that repeated a pattern of “failed socialist experiments in this country,” said the Wall Street Journal.

Carson’s beef with the rules seems to center on over-regulation, but concern from housing insiders surrounds two key issues: affordable housing and anti-discrimination. “I am astounded at the suggestion that Ben Carson would be nominated to serve as HUD secretary,” Kristen Clarke, president and executive director of the Lawyers’ Committee for Civil Rights Under Law, told CityLab. “HUD is among the most important federal agencies tasked with ensuring compliance with the Fair Housing Act, and creating affordable and inclusive communities.”

As distressing as that may be, there are other potential policy changes that are worrisome to housing experts, including: the possibility that home mortgage interest deductions could be eliminated—Carson pledged to do so while running for president; “scaling back and eliminating various federal programs he deemed ‘wasteful, inefficient or unnecessary’ in a six-page document outlining his positions during the race,” said Realtor.com, and privatizing Fannie Mae and Freddie Mac, which would “severely limit” the number of mortgages available and the lowest rates borrowers can get. Carson’s appointment could also affect taxpayer-supported subsidized housing, which primarily helps homeless, low-income, and even senior Americans.”

Looking for a silver lining? Those with the most skin in the game – namely the 1% we’ve heard so much about – will likely loudly oppose the elimination of mortgage interest. And then there’s this from Housingwire: “Being famous does not translate into great leadership, and more followers on social media is no way to select the future leader of HUD. But what this does bring is a chance for people to start talking about housing in a way that hasn’t been done in a long time.”

We’ll file that under the “all press is good press” theory.