Election Outcome Doesn’t Really Affect Home Prices? Or Does it?
With polling results reflecting an extremely close presidential race, we are not predicting a winner. But one thing we can predict is that no matter whether there will be a moving van driving up to 1600 Pennsylvania Avenue in January or the Obamas will be in residence, the housing market may suffer.
The cyclical nature of the housing market means there isn’t a single component that contributes to health of the economy. With everything under the sun influencing the housing market, the real estate news blog Movoto conducted a research study to see how this year’s presidential election might impact the market.
Differing from most, the research study put all government policy aside. It ignored candidates’ resumes and platforms and steered clear of voting polls and predictions. Instead of focusing on the candidates and their ideals and goals, the study focused on what should be the numbers.
The study used historical data from the California Realtors Association – which has no bearing on Georgia; however, can provide some historical correlation when comparing numbers on housing prices before, during and after an election year. With complete disregard to which political party was in office, Movoto researchers found several consistencies in the correlation between home prices and election years.
Here’s what they found:
• The year before an election home prices rose by 6 percent
• During an election year home prices rose by 4.5 percent
• After the election year home prices rose by 5.3 percent
The study showed that the greatest discrepancy in home prices during the three-year period around an election year was less than dramatic. The largest gap was a 1.5 percent less increase – which is still an increase nonetheless. While their findings may have been less dramatic than they were hoping for, they are encouraging for the housing market because of the question they pose: Why?
They asked the National Association of Realtors what they thought of the data and NAR provided the following response:
“We’ve observed no correlation between levels of home sales and an election year. The market responds to a wide range of economic factors, including jobs, interest rates and consumer confidence.”
NAR’s response lends to the previous statement that the market is cyclical. Since a presidential term is four years, analyzing a three-year period and drawing conclusions doesn’t hold a lot of validity. There are many more components of the housing market’s cycle.
In Atlanta, housing prices saw a four percent increase in May and June of 2012. This uptick was uncharacteristic for those months in our market and it also defies the research study that predicted housing prices to increase at a lower rate this year. Given that disparity, it cannot be rightfully assumed that we will see a change in home prices following the election.
Based on the data the researchers found, they hypothesized that the reason home prices experience less of an increase during an election year is because of consumer behavior. An election year is a time of uncertainty for the American people and in times of uncertainty, fewer large-dollar purchases are made.
This is a good hypothesis for a broad inference made from the data collected. Our outlook on the housing market ultimately affects the housing market. When we perceive things to be going poorly, we may look at the industry as a whole as doing poorly. So, as the researchers hypothesized, our stress around election years influences our stress about the market and could keep us from purchasing homes.
The person taking office in January 2013 after next month’s election may in fact have a significant impact on the housing market due to the unique variables that did not exist in previous elections. Home prices will be just as unpredictable as they are now.
Home price increases and a vibrant real estate market requires jobs, reasonable taxation and cooperative government. Increasing the national debt devalues the dollar, thus the $200M home you purchased is worth less in real dollars.
The fiscal cliff that looms at the end of Bush tax cuts will create havoc in the markets, thus potentially pushing the U.S. back into recession. As we experienced in 2009 – 2012, recessions are not favorable for a healthy housing market and consumer confidence.
Higher taxes, lower consumer confidence and uncertainty are a formula for a reversal in the progress we have made in the economy. I agree with the research that markets are cyclical; however, that only holds true when the people who set policy follow basic economic principals and theory.
The leadership in Washington matters.