Trump and property: an uncertain view of the future
Making sense of the latest trends in property and economics from around the globe
4 minutes to read
At the time of writing, Donald Trump has won the swing states of Pennsylvania, Georgia and North Carolina and is on the cusp of winning the 2024 US election.
Stock futures rose, as did Treasury yields. Dollar hit its highest level against major currencies in a year. The price of Bitcoin hit a new record. Investors clearly believe that Trump policies will be inflationary.
Consensus suggests Trump will let the deficit run higher as he increases spending and cuts taxes. Tariffs may also fuel inflation. This would postpone the long-awaited US housing market recovery as mortgage rates remain elevated. The average 30-year rate has risen for five straight weeks due to a mixture of strong economic data and anticipation of a Trump victory. Existing home sales fell 3.5% in the year to September to the lowest level since 2010.
The next Federal Reserve decision on rates comes tomorrow, having been postponed from today due to the election. A cut is pretty much baked in, but investors will pick over comments from policymakers for shifts in their view of the future. For more on the US housing market, see Knight Frank's latest insight report here.
The Fed
As we've seen in recent weeks, rising Treasury yields feed through to UK swap rates, which exerts pressure on the UK lenders to hike mortgage rates.
It's been pretty quiet in the mortgage market since last week's Budget and subsequent rise in gilt yields. None of what we're seeing suggests we'll see large rises in mortgage rates in the short term, but it could at the very least delay any further easing and may continue to dampen demand at every level of the housing market. That said, history suggests that Trump brings volatility, which fuels demand for safe haven assets. That includes prime homes and commercial real estate in major cities.
There will be broader economic consequences for Europe that will take weeks or months to become clear. Trump's dim view of NATO and his reluctance to fund the war in Ukraine could reshape Europe's geopolitical landscape. Tariffs could be extremely damaging, both for the UK and the eurozone.
As things stand, the National Institute of Economic and Social Research (NIESR) think tank reckons the UK economy will grow by just 1.1% in 2026, down from 1.2% next year and will only reach a sluggish 1.7% in 2030. If the US implements tariffs like those Trump has promised, UK economic growth will reach just 0.4% next year, says Ahmet Kaya, the group's principal economist.
Trump
The NIESR believes the Bank of England would probably have to raise interest rates to counter a rise in prices caused by higher US tariffs, which would cause pain for homeowners and would constitute nothing short of a disaster for the government.
The post-Budget spike in UK borrowing costs has already wiped out chancellor Rachel Reeves’ headroom against her main fiscal rule, leaving her reliant on a big improvement in the inflation outlook if she is to avoid further tax rises or spending cuts.
We'll hear from the Bank of England tomorrow, when it publishes its latest decision on interest rates. As the FT's Chris Giles pointed out last week, the Bank knew about the broad strokes of Labour's fiscal plans months ago, so any big Budget-related shift in the outlook would be a poor reflection on the Bank's ability to forecast. The same surely goes for a Trump victory.
All 72 economists polled by Reuters last week believe the Bank will cut the base rate to 4.75 tomorrow, but two thirds think there will be no move in December.
Persimmon
The reductions in mortgage rates that we've seen so far this year have been enough to spark a significant recovery in the demand for new homes.
Persimmon's private sales rate per outlet has climbed 37% to 0.70 in the period since 1 July, or 0.61 excluding bulk sales, the group said in a trading update this morning. Net year-to-date private reservations are up almost a quarter compared to last year. The company's private forward sales position has increased 40% to £1.45bn. Here is a key quote:
"As we move into 2025, we remain optimistic about our growth prospects although the quantum and timing of future interest rate changes is uncertain and we continue to assess the implications of the recent Budget. We are seeing some signs of build cost inflation beginning to emerge in price negotiations for 2025 and are working closely with our supply chain to manage our costs, which will also be impacted by new building regulations and the employer national insurance increases announced in the recent Budget. We are seeking to mitigate the impact of these cost increases through robust commercial controls and other management actions."
In other news...
Want to know what the Budget and the base rate decision means for you? Wait no more: Knight Frank is hosting a client webinar next Tuesday 12th November, featuring Tim Hyatt, Tom Bill, Chelsea Whelan and Ben Sheriff – sign up here.
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