Trump is only the third president, the other two being George Washington and Zachary Taylor, who made his fortune in real estate. So it’s safe to assume that Trump will favor the real estate sector of the economy, and possibly particularly the luxury real estate sector. Let’s take a look at how the new president may influence factors that affect our local market.
The first and most important factor affecting the Hamptons market is Wall Street. And the mood on Wall Street, we hear, is ebullient as President Trump signs orders to roll back financial regulations and the SEC faces budget cuts. Wall Street says that slashing regulations will enable economic growth. The Dow has been rising steadily since the election. (It doesn’t hurt that many of Trump’s biggest Wall Street backers all have homes in the Hamptons: people like John Paulson, Carl Icahn, Wilbur Ross, Anthony Scaramucci, and new Treasury Secretary Steve Mnuchin.)
So that’s one in the plus column.
Another issue is lending. While many real estate deals in the Hamptons are all cash, many aren’t, particularly in the $1 million to $3 million range. Less stringent mortgage underwriting could help that market. We hear that while credit is still tight, it’s loosening up. The GDP is expected to rise from lower taxes and increased defense and infrastructure spending. Interest rates may rise, though, if GDP growth leads to inflation.
Two in the plus column. We’re getting bigly here.
Next up is taxes. Trump wants to change the number of tax brackets from the current seven to three, and lowering the current top rate from 39.6 percent to 33 percent. That should free a lot of cash for new summer homes, rich folks!
But not from Trump. Trump says he uses commercial real estate depreciation to avoid paying any taxes himself. (Not that we know for sure because he refuses to release his tax returns.) However, only real estate professionals can write off real estate losses against their regular income. Anyway, commercial real estate is not a big deal in the Hamptons.
What about foreigners? Non-Russian foreigners may be feeling a chill from Trump, and in most luxury real estate markets, foreign buyers have been key to growth. But not in the Hamptons, oddly enough. The Chinese, for example, don’t much like the Hamptons. They prefer the Long Island North Shore. Chinese people tend not to like the beach and there’s nothing they want to do out here.
So that’s neutral.
Another smaller factor is undocumented workers. It’s no secret that the construction trade relies heavily on immigrants for labor. Mass deportations could create a very tight labor market for construction, meaning that construction costs would rise as would costs for new homes and renovations.
Our guess: overall, Trump will be good for real estate in general and the Hamptons in particular, at least in the short term. Our hope is that all these legal rollbacks don’t result in a repeat of the disaster of 2008. What do you think?