Exploring the Impact of Home Prices on Presidential Elections

For many Americans, the month of November in an election year is marked by a sense of uncertainty and anticipation, as they wonder how the outcome of the election will impact their lives and, more specifically, their plans to buy or sell a home. It's a common belief that presidential elections can have a significant impact on the housing market, causing potential buyers and sellers to hesitate and wait until the dust settles before making a move. However, a closer look at historical data reveals that the impact of elections on the housing market is typically small and temporary.

Elections often bring about big changes in various sectors of the economy, and the housing market is no exception, although real estate market changes might not be that remarkable. Understanding the relationship between political cycles and housing trends can provide valuable insights for both homebuyers and investors alike. Let’s explore how elections influence the housing market and what factors come into play.

Let's break down what to expect this year, based on patterns observed in previous election years. You might be surprised!

Understanding the Influence of Elections on the Housing Market

Sales of Homes

According to Ali Wolf, Chief Economist at Zonda, home sales are generally unchanged during an election year, with the exception of November, which tends to be a bit slower than normal. This temporary slowdown can be attributed to the uncertainty that people feel about making a significant financial decision, such as buying or selling a home, when they perceive that the election's outcome could have a real impact on their financial situations or where they want to live next.

However, this slowdown doesn't last long, and sales usually recover in December and escalate the following year. In fact, data from the Department of Housing and Urban Development (HUD) and the National Association of Realtors® (NAR) shows that after nine of the last 11 presidential elections, home sales increased the following year.

The Department of Housing and Urban Development (HUD) and the National Association of Realtors® (NAR) offer stats showing that after nine of the last 11 Presidential elections, home sales increased the following year.

Prices of Homes

When it comes to home prices, a Bankrate analysis of Case-Shiller data reveals that home price appreciation during past election years has surpassed that of the non-election years. The data shows that home prices rose an average of 4.84% in the nine election years since 1987, in comparison to an average of 4.44% in the 28 non-election years.

At first glance, this might suggest that presidential elections are positive for real estate sales. However, the situation is actually more complex than it seems.

The following shows the appreciation of home prices by year from 1987 to 2023 (election years are bolded):
1987: 7.22%
1988: 7.23%
1989: 4.39%
1990: -0.69%
1991: -0.17%
1992: 0.82%
1993: 2.16%
1994: 2.52%
1995: 1.79%
1996: 2.43%
1997: 4.02%
1998: 6.44%
1999: 7.68%
2000: 9.29%
2001: 6.68%
2002: 9.56%
2003: 9.82%
2004: 13.64%
2005: 13.51%
2006: 1.73%
2007: -5.40%
2008: -12.00%
2009: -3.85%
2010: -4.11%
2011: -3.88%
2012: 6.44%
2013: 10.71%
2014: 4.51%
2015: 5.20%
2016: 5.31%
2017: 6.21%
2018: 4.52%
2019: 3.68%
2020: 10.43%
2021: 18.87%
2022: 5.65%
2023: 5.56%

A closer look at the data reveals that the worst election year for the U.S. housing market was 2008 when home values dropped 12% as the historic housing bubble of 2004–2007 finally burst. In this case, the unfortunate timing of the housing market crash had nothing to do with the election but rather was a result of the collapsing global economy. Don't spend too much time on the 2008 data. But that crash left the door open to future growth in the real estate market.

On the other hand, the best year for home prices since 1987 was 2021 when the prices of homes shot up 18.9% due to record-low mortgage rates (that I didn't think I'd ever witness during my life) because of the housing boom and Seller's Market during the Covid pandemic. Once again, like the downturn during the housing collapse of 2008, the wild uptick in housing market conditions had no correlation with the election of 2020.

Interest Rates and Financing Policies

The decisions made during elections can also impact the monetary policy of a country, particularly regarding interest rates. The Federal Reserve often responds to the economic landscape shaped by newly-elected officials. If a government pursues measures that stimulate the economy, interest rates might remain low, encouraging borrowing and home buying.

On the other hand, if inflation concerns arise, interest rates may rise in response to government spending policies or changes in tax laws. Higher interest rates directly affect mortgage rates, making home financing more expensive and dampening the housing market.

Mortgage rates are an important factor to consider when thinking about the impact of elections on the housing market. These rates determine how big your monthly payment will be when you buy a home, so it's natural to want to know whether they normally rise or decrease during an election year. This knowledge will help you decide whether it's a good time to buy and sell or whether you should wait until things shake out.

Freddie Mac states that mortgage rates have gone down from July to November in eight of the past 11 presidential elections. Looking ahead to the consequences of the election of 2024, most real estate market predictions show rates decreasing somewhat for the rest of 2024 and into 2025. Assuming these forecasts are accurate, lower interest rates prior to the election will support rates to continue in a downward motion in the following months entering into 2025.

We all know that lower rates mean lower monthly mortgage payments, which is good news for potential buyers. However, lower rates also mean that more buyers will be ready to shop for homes, which can drive up home prices and make it more difficult for buyers to find available homes.

Many buyers who have been waiting to buy had given up during the crazy Seller's Market of the past and dropped out to wait for the market to become more balanced. We have been shifting to a more balanced market and some are waiting for it to become a Buyer's Market. But if rates drop enough there will be increased buyer competition that can lead to fewer concessions from sellers, making homes less affordable for buyers.

Why? Why can't we get to a more balanced market? Although inventory has been increasing, it is still lower than in the past. I have written about how I foresaw this happening since most homeowners who bought or refinanced when rates were in the 2-4% area aren't willing to sell and have to pay today's higher rates unless they have to (divorce, job transfer, needing a bigger place, etc.). As new construction continues to add to inventory, we will hopefully see a more even market without such wild swings.

Political Policies and Economic Outlook

One of the most direct ways elections affect the housing market is through changes in political policies. Candidates often campaign on platforms that include housing policies, such as mortgage interest rates, tax incentives for homebuyers, and regulations on housing development. Depending on the outcome, these policies can either promote or hinder affordability and access to housing.

For instance, a candidate who prioritizes affordable housing initiatives may implement policies to increase the supply of low- to mid-income homes. This could lead to a balanced housing market, where demand aligns more closely with supply, ultimately helping first-time homeowners.

Conversely, if an administration prioritizes deregulation or favors affluent buyers, we may see a surge in luxury developments while the middle market suffers. Such shifts can create disparities in market segments, affecting overall demand and pricing.

Local vs. National Elections

It’s essential to differentiate between local and national elections as their impacts can vary significantly. Local elections often focus on zoning laws, development projects, and taxes, which directly affect neighborhoods and property values. For example, a new mayor implementing stricter zoning regulations could restrict the development of new housing units, tightening supply in a growing area.

National elections, however, usually have broader impacts on federal policies that affect housing finance systems, such as the Federal Housing Administration (FHA) loans and tax deductions for homeowners. Changes at this level can reshape the landscape for mortgage lending, impacting how accessible housing is for average citizens.

Market Sentiment and Buyer Confidence

Elections can also influence consumer sentiment, which plays a crucial role in the housing market. Uncertainty surrounding election outcomes often leads to volatility; potential buyers may delay their decisions, fearing shifts in economic conditions based on election results. A lack of confidence can lead to fewer home sales, which in turn can cause prices to plateau or even decrease.

On the flip side, a decisive election outcome that aligns with favorable fiscal policies or economic growth can boost buyer confidence. If homebuyers feel optimistic about the future, they are more likely to enter the market, leading to increased sales activity and potentially rising prices.

To Summarize

It's important to keep in mind that while presidential candidates often hyper-promote their economic plans they have for their initial year in office, economists tend to agree that they have little to no influence over the housing sector. This doesn't mean that candidates won't try to convince voters otherwise, but it's important to take their claims with a grain of salt.

For those who are considering buying or selling a home during this election year, it's important to focus on local data and seek out the advice of a trusted real estate professional. While the national housing market may seem confusing or uncertain, a local expert can help you navigate the market with confidence and make informed decisions based on your unique circumstances.

While presidential elections can certainly add an element of uncertainty to the housing market, historical data suggests that their impact is typically small and temporary. Home sales may slow down slightly in November, but they generally bounce back quickly and continue to climb in the following year. Home prices may appreciate slightly more during election years, but this trend is not consistent and can be influenced by a variety of factors beyond the election itself.

Mortgage rates may decline leading up to the election and continue to trend downward in the months that follow, but this can also lead to increased competition among buyers and fewer concessions from sellers. Ultimately, the best way to navigate the housing market during an election year is to focus on local data, seek out the advice of a trusted real estate professional, and make decisions based on your unique circumstances and goals.

As the leaves continue to fall and the nation awaits the outcome of the election, it's important to remember that the housing market is just one small piece of the larger economic puzzle. While it's natural to feel uncertain or hesitant during this time, it's also important to keep things in perspective and make decisions based on facts, not fear. With the right information and a focus on local trends, you can confidently navigate the housing market during this election year and beyond.

The interplay between elections and the housing market is complex and multi-faceted. As new policies unfold and market sentiments shift, both aspiring homeowners and investors must stay informed about political developments. Keeping an eye on election outcomes and understanding their potential impact on housing can help guide smart real estate decisions, ensuring you’re prepared for what lies ahead. Whether you’re buying your first home, upgrading to accommodate a growing family, or investing in rental properties, being aware of these dynamics can position you strategically in a constantly evolving market.

You might not understand how the housing market is going to change after the upcoming election (even if you’re not worried about the election results), but with the correct, local information and data, you can make your impending real estate plans with confidence.

If you'd like more information on the direction of the Scottsdale real estate market (or any town in the Greater Phoenix area), contact me by phone or text at 480-906-1500, by email (judyorr@judyorr.com), or using the Contact Form on this site.