Early this year, Jeffrey Traum was back sharing his analysis of the current economy and housing market to Silicon Valley's Realtors. Aptly titled "Trump 2.0," the general manager of Morgan Private Wealth Management gave a similar presentation a year ago when the President had just assumed office to members of the Silicon Valley Association of Realtors in Palo Alto. A lot has happened since then, said Traum.
One year into the new presidency, the U.S. has a robust economy with increased capital formation, mergers and acquisitions. Though no bill on infrastructure has come out yet, the interest is there. There's also been a deregulation of the financial industry, which has eased the mortgage process and local permitting. Both consumer and CEO optimism are high.
Although a little inflation has kicked in, this means you start to have pricing power, said Traum. "The worst thing about inflation is the lack of inflation, which is deflation."
The biggest change from last year is the new tax bill, said Traum. The loss of deductions are a tradeoff to the new tax rates and the doubling of the standard deduction. However, the loss of deductions will be huge for those who have much more in deductions than the standard deduction. Viewing real estate in isolation, Traum said high-cost areas will have a tough time.
On the other hand, Traum said companies now have a lower tax rate and the country is beginning to see things happen as a result of it, like the repatriation of corporate cash, more investment and an expansion of jobs. Job growth means more people with more money.
Traum said the corporate tax break for Silicon Valley is huge, and this will lead to more job growth and increase the pressure for more housing.
"Whether you like it or not, Trump is a cheerleader for business," said Traum.
Trade has increased, but America has become more isolationist. The President's stance on immigration will impact California, particularly Silicon Valley, where 70 percent of workers in the computer and tech industries come from another country, nearly 50 percent of families speak a language other than English, and scores of international workers are service and farm workers. Traum noted without immigrants, prices and costs will rise and will add to inflation.
Going forward, Traum told Realtors to expect mergers and acquisitions to continue and GDP to rise to 3 to 3.5 percent. Though more housing is being built here than in the past, Traum anticipates home prices will continue to increase as long as there is a lack of housing. A populist movement already has sprouted calling for rent control and more affordable housing bonds.
"Watch interest rates," said Traum. The private wealth advisor said the interest rate is one variable that changes things because it impacts borrowers and the dollar. Interest rates creeping up will change valuations, slow things down, affect affordability and dampen consumer optimism.
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