2020 will already be remembered as the year many want to forget due to the massive life disruption and personal loss during the pandemic.
But another major 2020 event looms heavy in the shadows. That’s the 2020 Presidential election, which may bring about many changes across the nation, the economy, foreign relations, and more. But as an investor, you specifically might be wondering, how could the presidential election impact real estate? Of course, it’s hard to know if real estate will follow its typical election year trends given the already unusual market conditions fueled by the pandemic. Here are what the experts say about likely scenarios.
Pre-Elections Can Shake in Housing Markets Short-Term
The impact begins before those election results come in. According to the research reviewed by real estate analysts, Cushman & Wakefield, housing sales often slow leading up to an election, and the more unpredictable those results may seem, the greater the impact typically is.
After the 2016 election results shocked much of the nation by deviating from polling data, it’s understandable that despite the scientific polling taking place this year, most Americans will see this election as very unpredictable, regardless of the side of the aisle on which they sit.
Presidential Departure Can Leave a Void or Hope
When a president leaves, especially after two terms, this often creates a void that leads to a wait-and-see mentality from investors. There is uncertainty as to what will happen after the transition of power.
According to Windermere Real Estate’s Chief Economist Matthew Gardner, housing prices historically continue to rise in such a year, but YOY growth may slow before picking up the following year. Election years, at least over the past couple of decades, have been largely unpredictable regardless of who the candidates are, as evidenced by this very predictable slowdown.
Knowing the Outcome Can Bring Stability
Meyers Research found that median sale activity can drop 15% in an election year in the months right around the election, but may still exceed the previous year. However, by the time January rolls around and the incumbent or new president swear in, that drop is typically reduced to around 8% as buyer and seller confidence rebounds. In some cases, this recovery can happen as early as December.
Short-Lived Sales Drops May Not Be Enough To Lower Prices
Because the sales activity drop around elections typically lasts around two months, October and November, housing prices often remain stable.
For those selling market-ready homes, a potential one to two-month wait may seem worth it to get the desired price. However, those selling distressed homes may not have the luxury of time, lowering prices to sell faster.
40-Year Study Shows Clear Election Sale Price Trend in California
With that said, according to MOVOTO research of the California Housing markets, over the last 40 years, home value growth YOY is historically impacted with a 1.5% drop in YOY pricing growth for the election year followed by a .8% YOY growth drop in the following year.
In other words, home sale prices don’t stop growing during election years — they just grow more in non-election years, at least in California. More studies are needed to confirm this trend in other areas.
Income Differences Could Lead to Greater Impact in Some Markets
Investors selling homes purchased by those with high incomes may see a greater slowdown than those selling homes for the average middle-class family. Although we saw a summer rebound among big homes, those with high incomes may wait to make big financial moves right around the election.
People in the middle class, on the other hand, may be more likely to think about the tax advantages of buying a home in 2020. Real estate taxes, credits, and deductions may change in 2021.
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