Will the Presidential Election Have an Effect on the Real Estate Market?

 

The pundits tell us that this presidential election season has been unprecedented, completely atypical, singular in its volatility and astonishing revelations, and completely relentless in the instant access news cycles on social and traditional media platforms. True, the 24 hour news and social media cycles are unprecedented, however, looking back in history to other presidential election years, volatility and uncertainty tend to come with the territory in all election years. 

Since 1990, the S&P has fallen by 1.2% with regularity in a two term or 8 year incumbency, according to the Quarterly Investment Guide produced by CNBC. A study by Movoto, using historical data from the California Association of Realtors (CAR), concurs with CNBC that home prices typically fall 1.5% during election years and 0.8% the year following elections. A Redfin survey about the mindsets of potential homebuyers on this election year echoes these results, indicating that 27% of homebuyers believe that election years hurt real estate prices.

Investors in all economic markets, as most people, like predictability, known quantities, and consistency rather than change and/or uncertainty. Not knowing who will occupy the White House in January and how her/his policies and platforms may affect markets, topped by the uncertainty about what the incumbent will do in his last year of an 8 year term -the least predictable year according to CNBC-, make investors lean toward pessimism.  

A more optimistic voice is that of Pat Zicarelli, president of CAR. Zicarelli says that “...transitory political events such as presidential elections don’t drive housing markets. The real factors influencing housing markets include housing inventory, affordability, interest rates, job growth, and consumer confidence...our study indicates that growth in home sales at the end of election years actually, in California anyway, out performs non-election years by 7.1%”. The year before the election, said study found that home sales increase 6%. The year of the election, home sales increase 4.5%. And the year after the election, home sales increase 5.3%.

How elections affect housing markets is a toss up of historical data and one’s own state of mind. Unpredictable change can be disconcerting. On the other hand, consider Warren Buffett’s words: “Be fearful when others are greedy and greedy when others are fearful.”