Thursday, March 07, 2019

Will Housing and Deficits Be Trump's Downfall?

With political focus turning to the 2020 presidential election, three particular elements may make  Der Trumpenführer's re-election hopes much more shaky (yea!): The slowing housing market thanks to a combination of rising interest rates, the ballooning trade deficit and impact of Trump's tariffs, and the ballooning federal deficit  which itself will drive up interest rates. Should the housing market continue to slow, it could well drag the economy into recession just as attention on the 2020 election intensifies next year.  A piece in Politico looks at housing's threat to Trump's future - assuming he finishes his term and runs for re-election. Here are highlights:

The luxury real estate market in Manhattan is sagging. The GOP tax law is hitting real estate markets across the nation.
And signs of stress across the broader housing market suggest the industry — which made Donald Trump rich, helped thrust him into the White House and remains a constant obsession for him — could also be one that slows his economy and dents his chances at a second term.
The housing market may not cause the next recession like it did in 2008. But weakness in the construction of new homes, sales of existing homes and affordability for millennials looking to buy for the first time could contribute to a recession arriving as soon as next year or prolong any downturn. In addition to 2008, declines in the housing market were tied to recessions in 1974, 1980 and 1990-91, raising concerns that history is about to repeat.
One area where housing-market stress is obvious is the one Trump knows best: High-end apartments in Manhattan, where prices are now dropping as foreign buyers disappear and wealthy residents flee to lower-tax states.
“When you look at the New York metro area, we are moving from an extended period of stagnation to one of outright softening,” said Joseph Brusuelas, chief economist at RSM, U.S.
The Manhattan declines are directly linked to the late-2017 tax law that capped the mortgage interest deduction and indirectly to the capping of the state and local tax deduction, Brusuelas said. “People joke that they should have called the tax bill the ‘Everybody Moves to Austin Act.’ This wasn’t virtuous tax policy. It was punitive tax policy.”
Trump’s New York home is not the only blue state where the housing market has taken a hit following the tax law changes. Markets are also suffering across the Northeast, where sales of new homes dropped 16.1 percent in December, according to brokerage firm Redfin.
The cap on the state and local tax deduction is already showing in migration rates, according to Laurie Goodman, vice president of housing finance policy at the Urban Institute. . . . New York, California, Illinois and New Jersey topping the states with the largest flows of people leaving between July 2017 and July 2018. The largest in-migration states over that period — Florida, Arizona, Texas and North Carolina — have lower taxes.
A recent decline in mortgage rates following the Federal Reserve’s decision to pause its campaign of interest-rate hikes has improved the demand for new and existing homes somewhat in the last couple of months. But overall, the numbers suggest a broad softening in the housing market. Homebuilding investment shrank 0.2 percent last year, the worst performance since 2010. . . . . the industry’s doldrums could make an already slowing 2019 even slower and make the next recession even worse when it arrives.
“Once the economy moves into recession, so maybe mid-2020, the significant decline in residential investment will exacerbate affordability problems,” said Brusuelas. “The home affordability index and first time buyer affordability index are both showing significant signs of stress.”
Taken together, the declines in high-end markets and across states hit by the tax law changes — coupled with affordability problems for new buyers and reduced construction of new homes — suggest that the market could contribute to the next recession and make life difficult for Trump.
“I see recession hitting before the 2020 election,” said McCabe. “And it’s going to play a part in that election.
The other area that may threaten Trump is the failure of his tariffs and the further ballooning of the federal deficit thanks to the disastrous Trump/GOP 2017 tax cuts notwithstanding the GOP's disingenuous lies that "entitlements" are to blame.  A column in the New York Times looks at this other thorn in Trump's side.  Here are excerpts:
[O]ver two years of unified G.O.P. control of government, a funny thing happened: Both deficits surged. The budget deficit has hit a level unprecedented except during wars and in the immediate aftermath of major economic crises; the trade deficit in goods has set a record.
What’s the significance of this tide of red ink? . . . . Trump’s twin deficits tell us a lot about both the tweeter in chief and his party — namely, that they’re both dishonest and ignorant.
About the dishonesty: Is there anyone left who believes that Republicans ever really cared about debt and deficits? The truth is that the phoniness of their fiscal posturing should have been obvious all along. . . . . The moment they had a chance, the very politicians who grandstanded about the need for fiscal responsibility rammed through a huge tax cut for corporations and the wealthy — a tax cut that is the main reason for the exploding budget deficit.  Oh, and the tax cut has utterly failed to deliver the promised investment boom.
What about the ignorance? As many people have pointed out to no avail, Trump is all wrong about what trade deficits do. . . . . Trump is completely wrong about what causes trade deficits in the first place. In fact, his own policies have provided an object lesson in the falsity of his vision.
In the Trumpian universe, trade deficits happen because we made bad deals — we let foreigners sell their stuff here, but they won’t let us sell our stuff there. So the solution is to throw up barriers to foreign products. “I am a Tariff Man,” he proudly proclaimed.
The reason America runs persistent trade deficits isn’t that we’ve given away too much in trade deals, it’s that we have low savings compared with other countries.
Tariffs can, of course, reduce imports of the goods subject to the tariff, and hence reduce the trade deficit in that particular industry. But it’s like pushing on a balloon: You can squeeze it in one place, but it will just inflate by the same amount somewhere else. The process through which this conservation of deficits takes place can vary, although a stronger dollar, which hurts exports, is usually one major channel. But the basic result, that tariffs don’t actually reduce the overall trade deficit, is clear.
Sure enough, the Trump tariffs of 2018 did, in fact, lead to a sharp fall in imports of the goods subjected to tariffs. But imports of other goods rose, while exports performed poorly. And the overall trade deficit went up substantially, which is exactly what you should have expected. After all, that big tax cut for the wealthy reduced national savings.
And the supposed cause of the deficit isn’t the only thing Trump gets wrong about trade policy. He also keeps insisting that foreigners are paying his tariffs. In reality, prices received by foreign exporters haven’t gone down. Prices paid by U.S. consumers have gone up, instead.

A slowing housing market, a ballooning federal deficit that increases interest rates, and rising costs and decimated market sectors - think GM's closures - due to the Trump tariffs. The perverse side of me hopes things worsen if it will help ride the nation of Trump/Pence.

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