The U.S. is slowly edging towards the Presidential elections and with less than 3 months out, it seems the management of the economy will be a major issue for voters. This appears to be one of the more ‘volatile’ election campaigns we have seen in a long time in the U.S.

Both sides seem to be pushing heavy into the economic agendas, but the outcome, or headwinds investors may see are very different with each party.

Technically I don’t have a horse in this race, so we can look on the elections from a relatively ‘unbiased’ view.  Generally, for us as foreign investors, it is more around the impact on the housing market that the policies of the elected party have that is of more interest, but we also need to keep an eye on the reactions to the election as consumer sentiment can also affect markets.

In this election though, housing seems to have become a more ‘prominent’ issue due to higher mortgage rates, low inventory levels, and housing shortages in several states, all making for (in U.S. terms) a very expensive market (median house prices in the U.S. are still at record highs – US$495,100 for end of 2023 according to the Census Bureau and Dept of Housing & Urban Development).

Firstly, both parties have claimed to want to impact the housing shortage/cost of housing.  Kamala Harris and the democrats have said they will provide a US$25,000 down payment (deposit) assistance for first time buyers.  Now I can assume this will work similar to government first home buyer schemes we have had in Australia over the years.  Strangely enough though, just like here in Oz, when the prices are high due to under supply of properties, making it easier to buy properties, does not in fact fix the problem, but makes it worse…

Further her plan includes: creation of 3 million new housing units within the next 4 years, tax credits for developers who build starter homes/units (assuming this is more aimed at lower cost homes) and a US$40 mil fund to tackle the ‘housing crisis’.  To me this is all just words, and we have heard this and similar promises here from our government and it almost always leads to naught…

Trump and the republicans, on the other hand, have not directly tackled housing, but policies are more aimed at tax cuts, particularly for businesses, increased tariffs for imported goods, and looking to reverse a few of the green energy subsidies and mandates that the Biden administration championed.  Further comments/promises include reducing inflation and lowering interest rates.

This is interesting from two points.

Firstly, Trump’s policies, from a high-level overview could be regarding as inflationary. His claims of reducing taxes and increasing tariffs could certainly lift prices, causing inflation, so it would be interesting to see if his administration would monitor this closely.

Secondly, technically the president does NOT have any sway with the Federal Reserve Bank who sets the interest rates, and he is certainly not a fan of current chair Jerome Powell, the presidents do put forth candidates for the chair of the Fed and there was even talk that Trump could look to replace Powell as early as 2026, but this has dialled back some now, and with Powell’s stint up in 2028, Trump has said he would let Powell serve our his term, but then could nominate someone more willing to listen. This is also a little ironic as Powell was Trumps nominated candidate previously.  All in all, he would have little ability to control interest rates, other than ensuring the economy was healthy.

Then there is the claim from Trump that if elected he will attempt to ease economic pressure by devaluing the U.S. dollar…

Now, whether that is even possible is up for debate but there is no doubt that some of his policies could put pressure on the USD.

We spoke above about the powers the oval office has on the Federal reserve and lowering interest rates can generally lead to a weaker USD, but this would be difficult, particularly if Trump was looking to go against monetary policy to do this.  In his favour, it appears that rate cuts are on the horizon anyway, so he may just applaud this and roll with it, so to speak.

Alternatively, increases in oil mining and removal of bans on gas exports, as he has suggested he will do, could also put some pressure on the currency. As a climate change sceptic, Trump has promised to open more oil fields in the Gulf of Mexico and lift the moratorium on drilling in the Alaskan Artic.

Generally, energy prices can have a significant impact on consumer sentiment and can be considered inflationary.  Lower energy and fuel prices can help reduce costs of living and therefore inflation, which may then lead to the Fed looking to cut rates, and therefore, possibly drive the USD a little lower.  It’s a long shot, but if used in conjunction with other levers, could have some minor effect.

Threats of tariffs and/or trade negotiations could also be used, and Trump believes he can use the threat of tariffs to force other nations to make concessions with their currencies.

Trump was quoted by Businessweek in saying “Man, is it good for negotiation. I’ve had countries that were potentially extremely hostile coming to me and say, ‘Sir, please stop with the tariffs. Stop.’ They would do anything,”.

He said the threat of tariffs was effective against Japan and China and can point to some success with this tactic. During Trump’s time in office, the dollar declined 5.5% against the yuan.

Now, whether he can influence the USD is yet to be seen.  He can certainly point to the decline of the USD against the Yuan from his first term as evidence he can “get the job done” but most of his other polices are seen to be more inflationary.  Tax cuts, more government spending, and tariffs on imports are all likely to add to inflation, and subsequently interest rates and therefore more likely to inflate the value of the dollar rather than reducing it.

Overall, there is little in policy for either party that is going to have a massive impact on the housing market over the next 4 years.  If the first home buyers grant, by any other name, is implemented, this could put additional pressure on an already lower inventory market, and give some fuel to a hotter residential market, combined with the likelihood of lower interest rates over the next 18 months.  These are the main two points I will be watching closely.

In terms of currencies, a country’s currency will rise and fall with the strength of its economy in general, relative to its peers so if either party’s goal is to strengthen the economy it will be difficult to devalue the dollar relative to other currencies.

While political unrest can certainly quieten markets down, this generally does not last long.  For us here as foreign investors, it is ‘steady as she goes’ with looming rate cuts expected to buoy a relatively stagnant market, but strong market growth is NOT a strategy we deploy for the U.S. market whose strengths in cashflow and the ability to generate manufactured growth far outweigh any market growth strategies that we cannot control.  We have one of the best growth markets right here in Australia, but for cashflow and manufactured growth strategies, the U.S. is extremely strong and looks to remain that way for time to come.

If your keen to look at implementing cashflow strategies in the U.S. give us a call, we would love to assist.

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