With the 2020 Presidential Election upon us, there is quite a bit of uncertainty about how it will affect the real estate market. Let’s take a look at some key factors in how the real estate market reacts to an election year.
Why Do Election Years Affect Real Estate?
Consumers are the major driving force behind the US housing market, and an election year causes them to experience fear and uncertainty. They have questions about how the economy will fare under new – or the same – leadership, as well as concerns about tax policies and the stock market.
In addition to the usual uncertainty associated with an election year, consumer emotions have heightened even further due to the global COVID-19 pandemic.
In other words, when consumers are confident, they are more likely to buy – but when there is greater uncertainty it can slow down the real estate market.
So, what can we expect this year based on what has happened historically?
A Slowdown in Price Appreciation
Election years usually represent a drop-off in the appreciation of home prices, representing a good opportunity for buyers.
Studies have found that home prices rise about 1% less in an election year than they would otherwise. While 1% may not seem like a huge amount, this compounds over time and can negatively impact real estate investments.
While this slowed growth is not ideal for sellers and investors, and it represents a great opportunity for home buyers.
Increased Difficulty Selling Your Home
It may be more difficult to sell your home in an election year. Historically, if there is an election where the incumbent is not running and someone new will become president, buyers are more hesitant to make large purchases.
This is not the case in 2020, but the additional fear caused by the COVID-19 pandemic has compounded this effect. As a result, consumers may not be as willing to purchase a new home.
It is normal to see a decline in the real estate market during the third quarter, but Meyers Research conducted a study to see how an election year impacted this normal drop. They looked at the last 13 election years and found that the median change in home sales from October to November was -15%. In a non-election year, this number was only -8%.
Potential Policy Changes
Another risk for the real estate market is that a new president could result in changes to tax rates, deductions, and credits. Any change to deductions and credits for property owners could cause buyers to second-guess purchasing a home.
No one can predict what will happen in an election year, but based on historical trends we can expect a slowdown in price appreciation and consumer confidence.