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Do Election Concerns Hinder the Housing Market? Analyzing Housing Activity Data Reveals a Surprising Perspective.
As the nation eagerly anticipates the results of the presidential election on November 5, concerns about its potential effects are reportedly influencing the real estate market. For some prospective buyers, the uncertainty surrounding the election outcome is creating hesitation, making it difficult to commit to home purchases until they have clarity on future developments.
Are the nerves surrounding the election truly unsettling the housing market? More crucially, could the results disrupt the recovery trend that has been observed in real estate recently?
Election Anxiety and Its Effects on Housing
Informally, many buyers are pausing their homebuying plans due to the upcoming election. Reports from real estate professionals indicate that clients across the country are choosing to delay decisions and are not actively pursuing leads until the election results are finalized on November 5.
Among those who are feeling anxious, many first-time buyers are waiting to see if Kamala Harris will fulfill her commitment to provide $25,000 in down payment assistance. Others are speculating how the election outcome might influence interest rates and property prices.
In addition to housing concerns, buyers are also focused on the broader economic landscape and its implications for employment and businesses. Business owners, in particular, appear to be more anxious than usual. As Louisiana-based real estate agent Crystal Bonin noted, many are saying, “I need to see who wins to understand how it’s going to affect me.”
With both candidates proposing tax reforms and positioning themselves as advocates for small businesses, it’s understandable that many individuals want to see how these promises will materialize.
While a modest decrease in homebuying activity during an election year is common, this time seems to evoke greater caution among buyers than in past cycles.
Housing Market Resilience Amidst Uncertainty
However, the most recent data from the housing market indicates a contrary trend. According to Redfin’s latest housing market update, the housing sector is witnessing significant activity, contradicting the anecdotal hesitation expressed by buyers. A crucial indicator of homebuying demand, pending sales, has risen by 3.5% year over year in the four weeks leading up to October 20.
Pending sales have increased in 35 of the 50 metropolitan areas surveyed by Redfin. This is notable as it mirrors a similar trend observed in May 2021, during the peak of the post-pandemic housing surge. Additionally, Redfin reports a robust number of home tours for this time of year, which defies the usual seasonal decline in activity.
Home sellers are also remaining active in the market, with new listings increasing by 2.2% year over year. Although modest, this uptick, along with a 6.1% rise in the median asking price, suggests ongoing confidence among sellers.
All of this is occurring despite mortgage rates continuing their ascent, reaching 6.44% as of October 20, up from a two-year low of 6.08% at the end of September. While rising rates typically discourage buyers, it appears that many are choosing to act rather than waiting for a potential decline.
In summary, the data does not support the notion of a market disrupted by election-related anxiety. Even if concerns about the election linger, buyers appear determined to move forward.
In fact, for some, election anxiety may be driving their urgency: they fear that housing affordability could worsen after the election, prompting them to purchase sooner. Others may simply be experiencing election fatigue and want to transition beyond the political landscape, regardless of the outcome.
Potential Impact of the Election on the Housing Market
Historical trends suggest that elections have minimal long-term impacts on the housing market. Home sales typically rise in the year following elections, with data showing increases in nine out of eleven cases since 1978, according to the Department of Housing and Urban Development (HUD) and the National Association of Realtors (NAR).
Property prices generally see an upward trajectory in the year after presidential elections, with this trend occurring in seven of the last eight elections. The lone exception was the year following the 2008 financial crisis.
Interestingly, mortgage rates are not significantly swayed by elections; they often decline in the subsequent year. This all indicates that we can expect a vibrant housing market, irrespective of the election results.
Final Considerations
This is not to say that the next president’s long-term policies won’t have an impact on the housing market. If the elected candidate follows through on pledges to enhance homebuilding, repurpose federal land, increase spending, or implement rent controls, these factors could significantly influence real estate dynamics. However, such effects typically take years to materialize.
In conclusion, while it is reasonable for buyers and investors to have concerns about the election’s outcome, the immediate impact on the housing market over the next year appears to be minimal.
In the previous post: “Is Now a Better Time to Invest in Real Estate Debt or Equity?“
Do Election Concerns Hinder the Housing Market? Analyzing Housing Activity Data Reveals a Surprising Perspective.
Has the U.S. Housing Market Finally Begun to Thaw After the Pandemic?
It seems like the housing market might be showing signs of life. According to a recent report from Redfin, pending home sales in early October have seen their largest year-over-year rise since 2021, with a 2% increase in the four weeks ending October 6.
This news is likely to be welcomed by real estate investors who have felt the market has offered limited opportunities over the past few years. However, it’s important to take a cautious approach—one promising statistic doesn’t necessarily indicate a broader trend.
Is the Housing Market Truly Recovering?
Let’s explore the different factors at play.
Interest Rate Reductions: A Critical Factor or a Red Herring?
The Redfin report links the surge in pending sales to the Federal Reserve’s much-anticipated rate cut announcement in mid-September. According to Redfin, this announcement prompted buyers to re-enter the market in late September, despite mortgage rates having already been falling for weeks before the cut.
This psychological boost is crucial. Although buyers were aware of the falling rates beforehand, many seemed to be waiting for a formal signal to act. This could be attributed to a lingering fixation on the ultra-low rates of 3% to 4% that buyers enjoyed before 2022.
Any rate cut announcement serves as a nudge for prospective buyers, making them feel that now might be the right time to purchase, even if mortgage rates had been decreasing already. In an unstable mortgage market, such announcements hold significant influence.
However, mortgage rates are just one piece of the puzzle when analyzing housing market performance. As noted by Investopedia, the real estate market is driven by four primary factors: interest rates, demographics, economic conditions, and government policies.
Demographics: Shaping the Market
During the pandemic, demographic shifts had a profound effect on U.S. real estate, with major population movements like the Sunbelt migration fueling booms in cities such as Phoenix and Austin, which later became unaffordable for many.
Age is another key demographic factor, and the millennial generation’s pent-up demand continues to be a driving force behind the rise in home purchases. Despite the challenges of the past few years, millennials who have longed to become homeowners are now entering the market in greater numbers, as more properties become available.
Rising Inventory: A Sign of Stabilization
A key factor contributing to the market’s stabilization is the growth of housing inventory over the last year. The pandemic had a significant impact on the availability of homes, with sellers hesitant to list properties due to COVID-19 restrictions and, later, higher mortgage rates.
Some homeowners, particularly those upgrading to larger homes, found it financially challenging to sell and take on higher mortgages. Others, however, simply chose to wait for a more favorable market.
Although the latest Realtor.com report shows that inventory remains down by 23.2% compared to pre-pandemic levels, we are seeing an upward trend. For instance, new listings have been rising since last year, with a 5.7% year-over-year increase for the four weeks ending October 6.
As of September 2024, some states have even surpassed their pre-pandemic inventory levels, including Tennessee, Texas, and Idaho, with others, like Washington, close behind.
Vulnerabilities in Certain Regions
However, not all regions are showing positive signs. For example, some areas, particularly those affected by extreme weather, have seen inventory spikes not because of market recovery, but due to homeowners trying to offload damaged properties they can’t afford to repair.
For instance, regions like Florida and North Carolina, hit by hurricanes, have experienced increases in home listings, but these may reflect a response to climate-related challenges rather than market health.
Opportunities for Investors
Investors should be discerning when choosing markets, focusing on regions where inventory is growing due to increased home construction rather than climate-related distress. States like Idaho, Utah, North Carolina, and Texas, which are building new homes, offer potential, though caution is needed in areas prone to natural disasters.
The Midwest and Northeast, meanwhile, still face significant challenges in recovering to normal market conditions. These regions have lower rates of new construction, meaning inventory remains scarce, which could present both opportunities and difficulties for investors.
The Bottom Line
The U.S. housing market is showing signs of recovery, but the situation remains complex and varies by region. Interest rates play an essential role in unlocking the market, but investors should also consider other critical factors, such as homebuilding trends, climate risks, and government policies. While the market is heading in the right direction, it’s crucial to examine regional differences carefully before making investment decisions.
In the previous post: “Is Now a Better Time to Invest in Real Estate Debt or Equity?“