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Do Elections Really Affect Real Estate?

September 29, 2020

5 MINUTE READ

To say the least, this year has been anything but dull. Coronavirus. Wildfires. The lowest mortgage interest rates ever. A Supreme Court Justice vacancy. And, soon, Election Day. With the 2020 presidential election in just a few weeks, our team is diving in to share how home prices and sales could be impacted.

2020 Has been Difficult to Predict

With 2020 falling far outside of the norm, it’s a  given that most of the real estate transaction trends and patterns we follow aren’t really that reliable this year. COVID hit just as the spring home buying season began, and severely impacted the nation’s housing market. Thus,  2020 has been difficult to predict, but some patterns have emerged, at least in California:

  • Hovering around 3% on average, mortgage rates have never been lower
  • Home buyers are on the move – leaving cities and headed for the suburbs
  • Sellers are staying put but refinancing and beginning to test the waters by listing their homes for sale

Intermission

If you are ready to make a move, Reali Loans will get you a quote in minutes! We’ll get you some of the best rates in the industry while a dedicated Loan Officer works with you along the way so you never feel out of the loop.

On Our Real Estate Radar: Election 2020 

So how does choosing a president relate to real estate? Jonathan Miller, CEO of Miller Samuel, explains for The Real Deal.

The main correlation is caused by the atmosphere of uncertainty. Right now, we’re all too familiar with the effects uncertainty can have on home sales and prices. In the pandemic, the industry has seen a major hit on market activity that we’re just starting to emerge from. It wasn’t just the interruptions, but also the presence of the unanswerable question on everyone’s minds, ‘what’s coming next?’

“Clients are fearful that election results may change the economy,” said Sonal Basu, Reali’s Northern California Regional Manager. “Buyer home buyers and sellers are still out there in full force.”

Buyers and sellers don’t feel comfortable moving forward with one of the biggest transactions of their lives without certainty. Jumping into a real estate deal is a huge decision, and clients want to feel as solid as possible before making the leap,even more so if they are buying and selling a home at the same time – something we have some experience with. 

“In past election cycles, we have seen an impact on real estate in some cases, and no impact in others,” said Reali Program Manager and agent James Dienes. “What we typically observe in real estate activity post-election day is the stock market’s reaction to the election, which could create volatility and impact mortgage interest rates.”

“The market is stronger than ever in California. We have twice as many people buying homes now than before the coronavirus hit. The job numbers are still low but rebounding, and the Fed continues to keep rates historically low.”

An election’s political environment is inherently turbulent and some would argue that the current environment is the most political in decades. In the months leading up to election day the real estate market often ends up holding its breath/waiting with bated breath for the results.

However, Reali’s Southern California Regional Manager JP Dauber believes a bigger driver of market activity is the Federal Reserve’s commitment to keeping mortgage interest rates low.

“The market is stronger than ever in California. We have twice as many people buying homes now than before the coronavirus hit. The job numbers are still low but rebounding, and the Fed continues to keep rates historically low.”

Let’s Look at the Market Data

This relationship between elections and the housing market goes beyond causationThere’s solid data to back the correlation. Two interesting reports show that elections do impact real estate.

First, the California numbers. Research conducted in 2012 using data from the California Association of Realtors showed that during Presidential elections, the residential real estate market ‘increased 1.5% less’ than years both preceding and immediately following elections. 

Another source (the above-mentioned report conducted by Miller) examined the sales volume of Manhattan co-ops between 2008 and 2019, comparing the election years to the non-election years.

The pattern is clear. During election years, sales decline from June through October, with September being the lowest point, dropping by 12.7%. This is the period where political tensions climax, and in November when the decision is closer, the cycle reverses, and sales suddenly rise to surpass non-election years.

Another study conducted by economists in 2014 and published in the British Journal of Political Science examined elections in 35 states between 1999 and 2006. They found that home sales declined 2/10 to 3/10 of a percent during 73 of the elections examined. They also concluded that home prices declined slightly during election years.

Overall, during election years, consumers feel less confident, which makes them less likely to undertake significant purchases. This similar confidence-driven floodgate of market activity resembles what we observed during COVID – as soon as sales could progress more smoothly, sellers and buyers were both ready and willing to go. In the months of the new year following an election, sales peak in January and February and then follow the usual pattern of a non-election year. Typically, non-election years see an increase in sales volume between January and May and a downturn from June to December.

Moving Forward

It’s been a difficult year for real estate, and  we can now see it might not have just been the pandemic- the upcoming election may have also played a silent role in transaction movements.

Good news: the coming autumn months are something to look forward to, after all. We just need to wait and see how the COVID recovery and the election results combine at the 2020-2021 junction.

Count on Reali to keep you up to speed with the real estate market!