Reasons Why the Election Won’t Dampen the Housing Market

 

4 Reasons Why the Election Won’t Dampen the Housing Market

Tomorrow, Americans will decide our President for the next four years. That decision will have a major impact on many aspects of life in this country, but the residential real estate market will not be one of them.

Analysts will try to measure the impact feasible changes in regulations might have on housing, the effect of a possible first-time buyer program, and any number of other situations based on who wins. The housing market, however, will remain strong for four reasons:

1. Demand Is Strong among Millennials

The nation's largest generation began entering the housing market last year as they reached the age to marry and have children - two key drivers of homeownership. As the Wall Street Journal recently reported:

“Millennials, long viewed as perennial home renters who were reluctant or unable to buy, are now emerging as a driving force in the U.S. housing market’s recent recovery.”

2. Mortgage Rates Are Historically Low

All-time low interest rates are also driving demand across all generations. Strong demand created by this rate drop has countered other economic disruptions (e.g., pandemic, recession, record unemployment).

In addition, Freddie Mac just forecasted mortgage rates to remain low through next year:

“One of the main drivers of the strong housing recovery is historically low mortgage interest rates…Given weakness in the broader economy, the Federal Reserve’s signal that its policy rate will remain low until inflation picks up, and no signs of inflation, we forecast mortgage rates to remain flat over the next year. From the third quarter of 2020 through the end of 2021, we forecast mortgage rates to remain unchanged at 3%.”

3. Prices Continue to Appreciate

The continued lack of supply of existing homes for sale coupled with the surge in buyer demand has experts forecasting strong price appreciation over the next twelve months.

4. History Says So

Though it’s true that the market slows slightly in November when it’s a Presidential election year, the pace returns quickly. Here’s an explanation as to why from the Homebuilding Industry Report by BTIG:

“This may indicate that potential homebuyers may become more cautious in the face of national election uncertainty. This caution is temporary, and ultimately results in deferred sales, as the economy, jobs, interest rates and consumer confidence all have far more meaningful roles in the home purchase decision than a Presidential election result in the months that follow.”

Ali Wolf, Chief Economist for Meyers Research, also notes:

“History suggests that the slowdown is largely concentrated in the month of November. In fact, the year after a presidential election is the best of the four-year cycle. This suggests that demand for new housing is not lost because of election uncertainty, rather it gets pushed out to the following year as long as the economy stays on track.”

Bottom Line

There’s no doubt this is one of the most contentious presidential elections in our nation’s history. The outcome will have a major impact on many sectors of the economy. However, as Matthew Speakman, an economist at Zillow, explained last week:

“While the path of the overall economy is likely to be most directly dictated by coronavirus-related and political developments in the coming months, recent trends suggest that the housing market – which has basically withstood every pandemic-related challenge to this point – will continue its strong momentum in the months to come.”

How Will the Presidential Election Impact Real Estate?

 

How Will the Presidential Election Impact Real Estate?

The year 2020 will be remembered as one of the most challenging times of our lives. A worldwide pandemic, a recession causing historic unemployment, and a level of social unrest perhaps never seen before have all changed the way we live. Only the real estate market seems to be unaffected, as a new forecast projects there may be more homes purchased this year than last year.

As we come to the end of this tumultuous year, we’re preparing for perhaps the most contentious presidential election of the century. Today, it’s important to look at the impact past presidential election years have had on the real estate market.

Is there a drop-off in home sales during a presidential election year?

BTIG, a research and analysis company, looked at new home sales from 1963 through 2019 in their report titled One House, Two House, Red House, Blue House. They noted that in non-presidential years, there is a -9.8% decrease in November compared to October. This is the normal seasonality of the market, with a slowdown in activity that’s usually seen in fall and winter.

However, it also revealed that in presidential election years, the typical drop increases to -15%. The report explains why:

“This may indicate that potential homebuyers may become more cautious in the face of national election uncertainty.”

Are those sales lost forever?

No. BTIG determined:

“This caution is temporary, and ultimately results in deferred sales, as the economy, jobs, interest rates and consumer confidence all have far more meaningful roles in the home purchase decision than a Presidential election result in the months that follow.”

In a separate study done by Meyers Research & Zonda, Ali Wolf, Chief Economist, agrees that those purchases are just delayed until after the election:

“History suggests that the slowdown is largely concentrated in the month of November. In fact, the year after a presidential election is the best of the four-year cycle. This suggests that demand for new housing is not lost because of election uncertainty, rather it gets pushed out to the following year.”

Will it matter who is elected?

To some degree, but not in the overall number of home sales. As mentioned above, consumer confidence plays a significant role in a family’s desire to buy a home. How may consumer confidence impact the housing market post-election? The BTIG report covered that as well:

“A change in administration might benefit trailing blue county housing dynamics. The re-election of President Trump could continue to propel red county outperformance.”

Again, overall sales should not be impacted in a significant way.

Bottom Line

If mortgage rates remain near all-time lows, the economy continues to recover, and unemployment continues to decrease, the real estate market should remain strong up to and past the election.