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September 28, 2016

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From now until November, the one topic on everyone’s mind nationwide is the impending presidential election. This election in particular remains extremely divisive, with seemingly unprecedented amounts of animosity and rhetoric being bandied about on both sides of the aisles. But does this political contest have an impact on real estate? What do presidential elections have to say about the housing market? The answer, as it turns out, is that the election for the highest office in the land has a greater impact than you might think in several distinct ways.

Pessimism hurting real estate
As previously mentioned, this election cycle has been already significantly contentious, creating political rifts in families over differing ideology. This feeling of negativity and antipathy can be seen manifesting in the result of a recent Redfin survey showing that 27 percent of homebuyers believe the election will hurt real estate, up from 15 percent in February. This is a dramatic increase, particularly when taking into account that the election would have little or no direct impact on the housing market in the short term.

“Does this political contest have an impact on real estate?”

“While homeowner anxiety over the election is clearly mounting, the likelihood of an immediate shock to the market is slim,” Redfin chief economist Nela Richardson told Forbes. “It will take considerable time for our next commander-in-chief to implement policies that have any impact on housing.”

Historical impacts
This is not altogether unprecedented: Economists and housing experts have long tracked the impact that presidential elections has on the housing market. The real estate blog Movoto, researching historical housing trends, found that:

  • Home prices rose 6 percent the year before an election.
  • Home prices rose 4.5 percent during the election year.
  • Home prices rose 5.3 percent after the election year.

What causes these fluctuations in the markets? It could be a number of things. Some experts speculate that homebuyers are less inclined to make decisions during times of stress and uncertainty. This could explain the disproportionate impact that the Redfin study pointed to. In this regard, the psychic impact of an election could actually cause a dip in home prices as buyers forego their search and home sellers lower prices to compensate. 

“What causes these fluctuations in the markets?”

Can you forecast an election from the housing market?
Others point to broader economic factors causing the ripples. Housing prospects aren’t the only markets to rise and fall during the election cycle – stock markets do as well.  All economic issues tend to get amplified during an election – as candidates from both sides debate over the best course of action for the country. Indeed, by tracking these fluctuations, some political and economic experts say that it even be possible to predict the results of an election.

According to CNBC, historically, in an election year, if stocks rise between July 31 and October 31, then it is often seen as a sign that the incumbent party will win. On the other hand, if equities fall, then the standing belief is that a new party will be most likely taking over the presidency. This is due to the “devil you know” comfort in remaining with the incumbent party and can also been seen in other markets.

“Statistics such as unemployment and economic growth are highly correlated with an incumbent being reelected,” said Mary Ann Bartels, Head of Merrill Lynch Wealth Management Portfolio Strategy. “This time, we’ve got a lot of uncertainties. And if there’s one thing markets hate, it’s uncertainty.”

Will the housing market this time around predict the election? Home prices remain high while interest rates are (for the time being) low, pointing to a possible incumbent victory. Yet, in this historically contentious cycle, nothing is assured!

 

 

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