How Will the Presidential Election Impact Real Estate
Think back. Way, way, back to March, when we were all just learning about COVID...
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. If you’re interested primarily in how the election might impact the local DC area housing market, you can find that in the last section.
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.
Is there a more significant impact on the DC area real estate market?
This Washington Post article from 2016 has some useful information on exactly how much turnover there could be depending on the election results and how this could impact the DC area real estate market. Their research found that many of the positions that become available with a turnover in parties will be filled by hires who already live in the DC area and estimated the total impact at 2,560 home sales or around 5% of the overall DC metro area home sale total.
Another study by the National Association of Realtors in 2016, however, had different findings and concluded that the DC area should experience a rise in home sales in the year following the election since that is when the new government members begin their roles. This study found the following:
The year before an election home sales rose by 10 percent on average.
The year of the elections home sales rose by 12 percent on average.
The year after the elections home sales rose by 10 percent on average.
In summary, most experts agree that there could be a positive impact on the housing market as a result of the election, but other market forces are stronger and more likely to influence the resulting increase or decrease in home sales and prices.
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. The Washington DC Market is unlikely to see any major shifts, positive or negative, and the current market conditions are expected to continue. Any impact is more likely to be felt in 2021 than in the final months of 2020.