What The US Presidential Election Means For The Real Estate Market

US Elections

According to recent polls, the clash between Hillary Clinton and Donald Trump is set to be brutal, with Americans gearing up for what is expected to be one of the most hotly contested presidential elections in the history of the country. It’s evidently a very unusual contest, with Trump being a presidential hopeful with no past political experience, and Clinton, on the other hand, a candidate who has been through the best and worst of two administrations. According to economists and realtors, the final result could possibly have a profound effect on the U.S. economy, including the real estate sector.

Already, both Trump and Hillary have included various proposed economic reforms in their manifestos, and have subsequently been vocal about their policies. Of course they are expected to impact the real estate market one way or another, with businesses and individuals adopting to new administration policies. But, before we even get to the elected president part, it’s critically important to start by analyzing months leading to the actual elections.

Past Real Estate Trends During Presidential Election Periods

Over the last couple of decades, the real estate market has been recording drops during the election period, mostly due to uncertainty surrounding the whole process. According to a study conducted by Movoto on the real estate Market within California, it was established that the appreciation of homes drops by an average rate of 1.5% during an election year, compared to the preceding year. Interestingly, the subsequent year after the election, the rate bounces back, with an average increase of 0.8%. This of course, may not seem like significant difference in the beginning, but subsequent analysis reveals that they add up over time, making substantial impact in the value of a house and overall real estate market.

Going by these trends, a single election year could possibly cost property owners thousands of dollars, sometimes leading to huge losses, while granting would-be homeowners the chance to purchase houses at reduced prices.

Using the Freddie Mac House Price Index as reference, it’s evident that although the average drop rate is 1.5%, the actual margin varies a lot from year to year. This year, the average increase in home prices across the US is expected to drop from 5% recorded in 2014, to 3% during the election period.

But, which scale is used to predict the average expected impact of the elections on the real estate market? Going by a study published in the British Journal of Political Science, the decline rate is dependent on the tightness of the race. Due to increased uncertainty surrounding hotly contested elections, the drop rate is usually higher compared to less competitive presidential elections. Therefore, with Clinton currently holding a slight lead over Trump of 6 points, it’s possibly true that this year’s appreciation rate drop will indeed be greater than the 1.5% average, as suggested.

Why Presidential Elections Affect The Real Estate Market

The study by Mavoto explains that the election period builds up the stress levels among many Americans, consequently making them anxious and less likely to commit to property buying. The tighter the contest, the higher the anxiety, which translates to greater impacts on the real estate market.

Proposed policies also contribute to reduced home purchases, as suggested by a study that was conducted by Realtytoday during the 2008 election period. A majority of would-be homeowners were heavily weighing in all the homeownership and mortgage policies as proposed by both Obama and McCain, consequently choosing to wait for implementation before ultimately purchasing homes.

It’s also possible that Americans fail to invest in property during this period because of the uncertainty surrounding their finances after elections. A new president, of course, would mean new policies that could significantly impact income levels of some Americans, both positively and negatively. An individual’s ability to recover from a negative financial impact, of course, would be substantially reduced if he/she had already put money into buying a home during the election period. Many people therefore, prefer to wait out the elections and consider their home purchasing options after new policies have already been implemented.

Hillary Clinton vs Donald Trump

Now that we’ve established reasons behind price slumps, how would each of the candidates affect the real estate market if elected? Hillary Clinton’s policies are aimed at tearing down barriers that are currently preventing a significant number of workers, particularly minorities, from buying and owning homes. Among the initiatives she has proposed is a $25 billion housing investment program, which should be principally aimed at assisting and educating this group of people.

Donald Trump’s Republican Party on the other hand, proposes to also boost home ownership, while implementing policies to prevent another collapse, and reducing the administration’s role in housing. This has been viewed to go against Trump’s business approach 10 years ago, when he capitalized on the impending house market crash to make profits. As a matter of fact, it was revealed by CNN that Donald Trump could possibly be favoring another market crash, which would see the rich acquire properties at significantly low prices, consequently making huge profits as the market begins to pick up.

Public Perception

To gauge the public’s perception of this, Redfin, a national real estate firm, conducted a survey on 975 homebuyers across 36 states between May 17 and May 23. Only a minority of the respondents, 27% to be precise (up from 14% in February), believed that the presidential elections would have a negative impact on the real estate market. 63% of them, on the other hand, believed that the race between Trump and Clinton would not have any effect on the US real estate market.

According to the firm’s chief economist officer Nela Richardson, although there’s increased anxiety as we approach the elections, the chances of an immediate shock to the market are slim. And that applies to both possible negative and positive impacts. He indicated that post-election impacts would also be slow, since it would take the new president a substantial amount of time to comprehensively implement suggested policies across all the states in the US.

Conclusion

Even with widespread belief that the presidential elections may not affect the market, experts still predict a possible 2% drop in the appreciation rate. Although investors may be skeptical and uncertain about the trend after elections, this is an ideal time to acquire property and increase your portfolio, as opposed to next year, when the appreciation rate is expected to recover, as the new president begins implementing proposed real estate policies.

For sellers, going by the study by Realtytoday, it may be harder to find good and committed buyers until Americans elect their next president. So, you might want to sit this one out and wait to list your properties possibly a year after elections. This should make it easier to find prospective buyers and sell at significantly greater prices.

 

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