I’m an Economist: 4 Potential Housing Market Changes If the Senate Turns Republican

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Americans are wondering if there will be any relief to rising home prices. Meanwhile, many Senate seats might flip after the November election, and this could have a big impact on the housing market — especially if the Senate turns majority Republican.

“In this high-interest and mortgage rate environment, my 28-year-old soul can’t buy the house, my 55-year-old aunt can’t buy the house, my 60-year-year-old neighbor can’t buy the house,” said James Miller, manager of tax operations at Tangent Consulting. “And don’t forget Nevada, as it has the country’s highest housing shortages. We are all wondering if the election year can provide us with solace.”

With that in mind, here are some of the changes experts predict we might see with a Republican Senate. You can also check out predictions for the housing market if Kamala Harris wins the presidency here.

Lower Mortgage Rates 

One reason home prices have been going up is because there is not enough supply to meet the demand of prospective buyers right now. Michael Collins, CFA, founder and CEO of WinCap Financial, said that with a red Senate, we might see supply dwindle even more. However, we could potentially get lower mortgage rates too.

“One major change could be in the form of changes to government policies and regulations surrounding housing,” Collins said. “Republicans typically have a more conservative approach to government involvement in the housing market, so there may be a push for less regulation and more incentives for private investment. This could lead to a decrease in supply, but possibly also lower mortgage rates.”

Currently, mortgage rates fall between 6% and 7% depending on the type of loan. More buyers might be able to afford homes if the interest rates were to fall.

Miller agreed that we could see lower interest rates with Republicans at the helm in the Senate. “Indeed, former President Trump is reminding us that in his time, everyone could buy a house, as interest rates were 2%. So, a Trump presidency and Republican Senate means we’ll see lower home prices.”

Miller added that the interest rate decision also depends on the Federal Reserve. “If we see a Fed rate cut in September with subsequent cuts in November or December (or maybe both), the low-interest rate environment will make the housing market more robust, regardless of whoever wins the Senate.”

Perks for First-Time Homebuyers

Along with lower mortgage rates, Republicans might do more to entice first-time homebuyers.

“There is pretty good bipartisan consensus that we need to do something to improve the affordability of housing,” said Michael Montgomery, a lecturer in the department of health and human services at University of Michigan-Dearborn. “So, I could see Senate Republicans not standing in the way of a tax credit for builders of ‘starter homes’ or small grants for first-time homebuyers.”

Jim Ronan, a lecturer with the department of political science at Villanova University, agreed, saying any move to lower tax rates aligns with the Republican point of view.

“For instance, one strategy might be tax incentives or deductions for builders and suppliers,” he explained. “This would be right in line with the GOP pledge to reduce taxes overall and could also serve to attempt to reduce inflation in the market, which is an issue highlighted by nearly every Senate candidate.” 

Ronan said this could increase the amount of homes, solving the issue of low supply. “For example, there may be incentives to individual states to encourage builders to increase production. Along with potentially improving the housing supply, this would also reflect a traditional conservative goal of transferring power from the federal government to state and local governments.”

Fewer Affordable Housing Programs

Even though Montgomery said both parties want to make housing more affordable, that doesn’t necessarily extend to government programs. As Collins said, a Republican Senate favors less regulation. This could actually mean cuts to federal housing programs. 

“If Republicans also gain control of the White House and maintain their majority in Congress, there may be efforts to reform or reduce federal housing programs such as affordable housing initiatives or funding for low-income homeowners, which could have a negative impact on those who rely on these programs for stable and affordable housing options,” Collins explained.

No Tax Benefits for Owning a Home

“The biggest landmark legislation of the early Trump era, when Republicans held a majority in both the House and Senate, was the Tax Cuts and Jobs Act (TCJA),” said Brenton D. Harrison, financial advisor at New Money, New Problems. “The TCJA made major changes to the tax code that negated the tax benefits of homeownership for many filers, especially those in areas with high property taxes.”

Harrison believes that under a Trump presidency and with Republicans in control of the Senate, it’s likely the TCJA might be extended, meaning the tax benefit of owning a home would cease to exist once again.

“The act significantly increased the standard deduction available to filers looking to reduce their taxable income. The deductions associated with owning a home — property taxes, mortgage interest and, in some cases, interest on home equity lines of credit — can only be accessed by those who choose to itemize. Since most Americans saw greater tax relief by opting for the increased standard deduction, a large benefit of home ownership was made null and void.”

Harrison also explained that the TCJA limited the amount of state and local taxes that could be deducted to $10,000. “This limitation means that homeowners in many areas with high tax rates were left paying thousands of dollars in property taxes that couldn’t be deducted because they fell over the threshold.”

Additionally, homeowners used to be able to take deductions for interest paid toward Home Equity Lines of Credit (HELOC). Under the TCJA, that would no longer be the case unless the funds were used to buy, build or improve the home. “And even in scenarios where HELOC funds are used to improve the property, interest could only be deducted on up to $750,000 or the loan for married couples ($375,000 for single filers),” he explained.

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