The 2016 Presidential Election is only a few weeks away, and while some of its implications may be obvious, many Americans are wondering how it will impact the real estate market. As a general rule, election results hardly make much of a difference, but with one of the world’s biggest real estate moguls running against a longtime politician, this year could prove to be different.
The Election Cycle
Before digging in to how this year’s election results will impact the market, let’s first look at past races. Historically speaking, the election cycle, not the election results, have a much stronger bearing on the real estate industry. According to the Freddie Mac price index, US housing prices have increased an average of 4.25% per year since 1978. During the 9 election years since then (1980, 1984, etc.), home prices only increased by 2.75% per year. This clearly marks a slow down in real estate during election years.
So what causes this trend? The answer is uncertainty. While the President does not have the power to unilaterally dictate the rise and fall of the real estate market, many Americans believe that he (or she) does. This perception, albeit not warranted, is strong enough to make people hesitant to make any major financial decisions during times of uncertainty. Therefore, with less buyers in the marketplace, home values will inevitably fall, or at least slow their growth during an election year.
Another interesting point in uncertainty is looking at which elections most negatively impacted home values. Since 1978, these elections were 1980, 2000, and 2008. All of these elections had one thing in common – uncertainty as to who the next President would be. In 1980, Jimmy Carter was one of the most unpopular president’s of all-time and it was fairly well-known he wouldn’t be re-elected. He nearly even lost the Democratic nomination to Senator Ted Kennedy, which would have marked the first time the incumbent President lost the re-nomination since Chester Arthur in 1884. In 2000 and 2008, Bill Clinton and George W. Bush (respectively) had reached their term limits.
All that said, there is no clear-cut correlation between which party is in the White House and housing prices. Some Presidents witnessed a better real estate market, such as Ronald Reagan and Barack Obama, but others saw a declining market, such as Jimmy Carter and George W. Bush. Though the President can influence interest rates and set the overarching vision for economic policy, the bottom line is that no matter who’s in office, the market is not greatly impacted by their policy.
Every President we’ve seen to date, except perhaps for James Polk and Franklin Roosevelt, have done little to impact the housing market’s general trend of slow and steady positive growth. But could this year be different? Here’s what the doomsday extremists say:
“Donald Trump’s erratic behavior will drive the real estate market into panic mode, and the entire economy will capsize in his failed attempts to renegotiate trade deals, taxes, and government regulations. Hilary, on the other hand, will destroy the economy with her crippling tax hikes and anti-business mentality”.
With this mindset, perhaps the only logical solution is to vote for Gary Johnson, but is there actually any truth behind the extremist ideology?
While Donald Trump talks a lot about disrupting the economy by lowering taxes and deregulating the private sector, he understands real estate more than most. Regardless of your opinions on Trump, the guy did become a billionaire off of his real estate investments. Therefore, it is highly unlikely he will do anything to directly negatively impact the real estate market. In fact, many experts believe after all is said and done, his economic policy will be extremely pro-real estate. That said, we could see a minor setback in home values if Trump is elected simply due to an over-reaction of uncertainty. In addition, Trump’s stance on immigration could reduce the amount of potential home buyers and renters moving into the US each year, which currently accounts for nearly 25% of our annual population growth. As a whole, a Trump presidency will likely lead to a volatile real estate market until early 2018, at which point we should see above-average growth.
Now let’s talk about Clinton. It’s well-known that Hilary Clinton supports much more government regulation than Donald Trump, which generally slows economic growth – at least according to Republicans. Democrats argue that this slowed economic growth is counter-balanced by a more stable growth. Based on statistics from the US Department of Commerce, the truth is somewhere in the middle, but overall it is generally accepted that Clinton’s economic policy will lead to slow, consistent, and steady growth both in the stock market and in real estate. The question now becomes, how slow will this growth be? Since World War II, growth in GDP has been slowest (3.2% per year) under President Obama. Growth under Obama has also been consistent, ranging from 2.5%-4.5% during his last 7 years in office. Conversely, Ronald Reagan oversaw some of the highest growth (7.7% per year), but also very sporadic ranging from 3.8%-11.4%. Most experts believe Clinton’s economic policy will fall somewhere in between Obama’s and Reagan’s leading to healthy, moderate growth to the GDP, and thus the real estate market.
It’s very difficult to predict the future, but one thing is certain: the election cycle and consumer reaction to the election will impact real estate much more than the election results themselves. I suspect the increased uncertainty and polarity in America’s political environment will temporarily impact growth in home values over the next few months, but it will ultimately level out. At the end of the day, property values will almost certainly be the same regardless of who is in the White House. If Trump is elected, the growth will probably be more volatile, and if Clinton is elected, it will be slow and steady. There are advantages to both, and therefore it is essential as a homeowner to understand how these trends no only impact the real estate market as a whole, but also how they impact your home individually.