Ready or not, the 2020 presidential election is upon us, and its potential effect on our industry should have us all paying close attention. Election years typically mean instability in the stock market as investors tend to be skittish during rocky political environments. That sentiment, unfortunately, trickles down to the housing market. Below are a few key factors we are watching in the upcoming year.
1. Appreciation May Drop Off During an Election Year1
Historically speaking, election years are good for buyers as home prices tend to rise more slowly. After looking at pricing data from the California Realtors Association, researchers concluded that election years had a negative impact on the housing markets.
- Home prices rose 6.0% in the year before elections.
- Home prices rose 4.5% the year of elections.
- Home prices rose 5.3% the year after elections.
Election years produce slower growth. That’s great for bargain buyers but not so much for industry professionals. While the slower growth is minimal, it will still impact the industry.
2. Uncertainty Can Make It More Difficult to Sell Your Home.
Another factor impacting home sales is the uncertainty that comes with a new president. In years where an incumbent is not running (like in 2016), someone new will take office, contributing to buyers’ hesitancy to make large purchases.
Brandice Canes-Wrone, a Princeton economist, and co-author Jee-Kwang Park, conducted research2 that looked at data from 35 housing markets during 73 gubernatorial elections. They found that two factors affected what they call “pre-election decline”: a close presidential race and policy differences between the two parties. Many buyers will simply wait until after the new president is in office before buying a home.
3. Real-Estate Tax Rates, Deductions, and Credits May Change.
The tax deductions and credits for property-owners are among the longest-running tax breaks on record. The Trump administration brought us the Tax Cuts and Jobs Act; a new administration could undo some or all of that as pertaining to property-tax deductions. Removing or reducing one’s ability to deduct up to $10,000 of property taxes for federal returns could be a significant deterrent for first-time homebuyers.
4. The Consumer Confidence Factor
One influencer in 2016 was the fluctuation in consumer confidence3 in the U.S. economy. The health of the economy and housing market are closely tied together. When consumers feel confident, they are more likely to buy. With consumers on the fence about the economy, the uncertainty of the elections could create more pessimism than optimism.
5. Elections Can Affect a Home’s Value.
Elections have historically affected housing prices with a slightly lower percentage increase in value4. According to a study of the California real-estate market, home prices typically rise 1.5% less during an election year5 than in the year prior to the election, and 0.8% less than in the year following the election. While these percentages may not seem like much, they can add up over time. An election year could potentially cost homeowners thousands of dollars in lost value to their largest assets.
Housing prices in election off-years increased, on average, by 0.22% more than housing prices in election years. In 2016, housing prices increased by only 3%, a drop from 2014’s 5% pricing increase.
There remains, however, one particular region that benefits greatly from a presidential election. You guessed it: our nation’s capital.
Washington, D.C. metro builders, get ready for a boom in 2021 if a new president moves into office. (And, please call RoyOMartin for OSB and plywood if that happens!) Presidential elections contribute to some growth in the housing market in the Washington, D.C. metro area during an election year, but the real boom comes to the county the year following, as the new administration moves in. In the Washington, D.C. metro area:
- Home sales rose by 10%, on average, the year before an election.
- Home sales rose 12% the year of the election.
- Home sales again rose 10% the year after the election.
Likewise, median home prices had more gains in the election year than the previous and following year in both areas. In the Washington, D.C. metro area, median home prices grew by 3% in the previous year of the elections, 7% in the election years, and then reverted to 5% growth one year after the elections. In a similar way, the District experienced 7% growth in the previous year of the elections, 8% in the election years, and 6% one year after the elections.
Elections aside, there are enough positive indicators to keep us cock-eyed optimists:
- Lower taxes
- Consumer confidence
- Low unemployment (more jobs being created)
- Millennials are buying
We have an incumbent in office, consumer confidence and the stock market are at all-time highs, and unemployment is at an all-time low. However, we are currently waiting for all that economic positivity to hit the housing market. Perhaps the housing market will remain steady and even gain growth, but if American politics and 24-hour news cycles have taught us anything, we may want to brace ourselves for a bumpy ride and be pleasantly surprised when we see that long-awaited growth hit the housing market across the country.
—Amanda M. Vincent, Sales Representative