The Election Cycle vs. The Housing Cycle

Screen Shot 2016-08-12 at 11.48.24 AMThere’s a conversation that real estate agents and their clients have every four years, usually starting in July (sometimes August, and in some cases, even September) based on the question, “So, how do you think the election is going to effect the real estate market?” My stock broker tells me his clients ask him the same thing about the stock market. That said, since you may be interested in asking the question, I’ll reply with the same ever hedging answer I get from him whenever I ask about the market: “it depends.”

“It Depends”

A lot of factors go into the ups and downs of the macro housing market, but they can be broken down into the tangible (such as interest rates, inventory, and bond prices) and the intangible (consumer confidence, what’s on the evening news and whether or not Uncle Phil’s leg is aching on the third Monday of the month).

To be on point, a Movato study showed that sales prices dip about 1.5% nationally on average during an election year. In high-demand markets this slight dip in prices is usually countered by the desirability of houses so as to be imperceptible (I’m talking to you, Westside of LA — especially Santa Monica). But sometimes consumer confidence can be so low that people don’t get the memo that the election shouldn’t effect buying decisions.

“For Example…”

Let’s take a look at the 2008 election year… in the months leading up to the election, people were ‘majorly bumming.’

[Just a quick history lesson as we delve in: The sub-prime market was pulling the rest of the mortgage business into the swirling whirlpool of devastated debt, Lehman Brother’s and other brokerage and commercial banking houses were crumbling because their financial foundations were replaced by default swaps and collateralized debt, and consumer confidence was so low that people wouldn’t have noticed if a meteor hit the Earth followed by Godzilla walking into town and destroying all the buildings on Main Street.]

Almost every single one of my buyer clients wanted to “see what was going to happen” with the election, and all of my sellers braced themselves to either stay the course or reduce their price depending on “what happens with the election.” To be logical about it, the downturn in the market that continued to happen had everything to do with what was happening to stocks and banking (remember how difficult it was to get a loan if your weren’t able to walk on water… while juggling?) than it did over who was going to end up in the White House.

And after Obama was elected, the market continued to slide until “Quantitative Easing” kicked in (oh, and a few billion in bailouts didn’t hurt, either) and people started to feel better about the economy. As lending loosened up there was a light at the end of the tunnel and the recovery took hold.

Interestingly, in 2012, consumer confidence levels were positive leading up to the election, and though there was no guarantee of continuity with regard to which party was going to occupy the White House, housing prices remained on their upwards course.

“What about 2016?”

Let me point out the obvious: our candidates are as far apart with regard to viewpoint, temperament and policy as we’ve seen in the United States since 1800 when Jefferson ran against Adams (check it out here if you are interested My buyers and sellers are about as at sea as they felt in 2008, wondering how the election will affect housing prices (and stocks and bonds). With this in mind, here’s my bold prediction: people will gain confidence once the election is over, and the market will barely be affected in the short term.

To put it another way: the housing market will not be immediately impacted by the results of the 2016 election. I say this because [cue patriotic music] unlike unstable countries in which the “election” of a dictator versus that of a military strongman will all but certainly affect economic policy in that country, here in the US we have congress to mediate and ameliorate presidential whims, while a strong central bank and the desirability of our bonds also serve to temper wild swings. And as long as there’s a degree of turmoil in the rest of the world (eyes on Syria, Europe, Ukraine and England), people will continue to invest in the United States, bonds will stay low — with real estate being one of the most desirable assets to hold.

I don’t like to go out on a limb, but I will predict that come November 9th, the people of the United States will wake up to either Donald Trump or Hillary Clinton as president. Hillary Clinton has addressed rental housing affordability, but hasn’t said much about home ownership and real estate investment (which I take as good signs, since I think markets will react kindly to a continuation of the status quo, and she hasn’t made any threats to take away mortgage interest deductions or depreciation of income properties). Donald Trump has not given many details of how he’ll handle real estate finance and home ownership (or really anything else), but if the way he has handled his investments is any indication, perhaps property owners can look forward to the perk of easy bankruptcies that will not hurt their own bottom lines (and perhaps there will be a federal tax credit for those who that put gold letters spelling “Trump” on their houses and buildings).

I don’t have a crystal ball, but it’s safe to say that different segments of different markets (mainly stocks and bonds) will react to either winner, but history shows that any effect would be short lived. Real estate (especially investment real estate) is more closely tied to Treasury bonds, which generally react much slower and more gradually, allowing for more deliberate financial decisions.

Which is my way of finally getting to my client’s question: How will the market be affected? After the short run, hardly at all. If you want that view property we looked at earlier, I’d suggest we put in an offer while everyone else is busy biting their nails.

This post originally appeared in The Huffington Post.

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