“Who will you vote for?” Discussions and predictions revolve around this recurring question which only the historical decision next week can answer. Whether America will see a presidency led by Clinton or Trump, no one can deny the amount of political and economic uncertainty towards the future. While both candidates have touched on issues such as immigration, healthcare, and employment, voters have been left in the dark with regards to other specific issues. Real estate would be one of them, and this is concerning to both buyers and sellers who are interested in knowing about the future housing policies that may affect their assets. Their wariness translates to some changes in the market which reflect a general pattern that has been seen in previous election years.
Unwilling Buyers amidst Election Uncertainty
If you can’t handle the gamble, then don’t invest yet—this is the kind of mindset that many buyers have adapted over the months that have been leading up to this year’s election. Each candidate has his or her own housing policies, and some of these policies contain risks that can be potentially disadvantageous to these buyers. Rather than taking chances, majority of real estate buyers would choose to wait until the market is more stable before making large investments again. This fact has been proven by a 2015 research conducted by Brandice Canes-Wrone and Jee-Kwang Park for the British Journal of Political Science. The results of this study showed that home sales tend to drop by 20-30%, depending on the state. The decrease in home sales is even more severe if the results of the election is a closely tied one.
“With all the political in-fighting the country has had in the past, it is unlikely the new president will be able to soothe both sides immediately, and that may cause instability [in] the market,” a Virginia-based respondent said in a survey conducted by Redfin which inquired 1,000 home buyers about election outcomes in connection to housing. About 27% of the survey respondents are pessimistic towards the election outcome and its effect on the real estate market—a figure that has doubled since the same survey was conducted in February.
Despite buyer unwillingness and uncertainty, some market analysts predict that this won’t heavily damage the market at first. In response to the survey conducted, Redfin Chief Economist Nela Richardson predicted that the impact of the next president’s policies on housing won’t be felt until after a year or two. Therefore, despite buyer anxiety due to the coming elections, there would be slim chances of an immediate market shock any time soon.
Significant Decrease in Price Growth Rate
A general market pattern has been observed since the 1980s—during election year, as buyers hold back, the price growth for properties weaken to meet demand. Based on the Freddie Mac House Price Index, the appreciation rate would drop by 1-2% which may seem small, but could translate to homeowners losing thousands of dollars in their assets. Eventually, within 2 years after the election, the rate increases on average by 0.22% more than the house prices during the election years.
For example, a study was conducted using data from the California Realtors Association found that in the three years surrounding the 2012 Presidential Election, home prices were up 6% in 2011, went down to 4.5% in 2012, and eventually rebounded to 5.3% in 2013. The researchers of the study attributed these price jumps to buyer uncertainty caused by the election outcomes which has temporarily slowed down the market.
From 5% in 2014, price growth has now dropped to 3.3%--the lowest rate compared to previous years. Factors such as a very close election and heightened market uncertainty are possible explanations for this alarming trend.
To Invest or not to Invest?
Based on history, election year skittishness is simply part of the same market cycle. Today, sellers will experience difficulties in closing deals as buyers continue to play the waiting game, and with each passing day, home values decrease in price. Sentiments in the market will eventually change, and in 1-2 years, the home prices will rebound. Ultimately, market performance will recover. The point of difference now lies in the winning candidate and how his or her policies will affect the market as a whole.
Economists and real estate professionals expressed different predictions on how each candidate will affect the real estate market. A Zillow survey of real estate experts reveals expectations that a Clinton presidency will bring about high home values and housing reform while a Trump victory may cause a negative effect on prices due to lower confidence on home values and overall economy performance. In addition, Peter Linneman, Chief Economist of NAI Global, foresees an overexposure of real estate tax regulations with a Trump presidency, although the impact of this will not be obvious until 2018. He does admit that compared to Obama, both Clinton and Trump are “big believers in the markets,” and both would be able to contribute to real estate growth.
Given all of these, market players are faced with tough decisions. Should a buyer invest with the risk of losses? Should sellers continue to market their properties at lower prices or withdraw until a later time? These are some of the questions that the market needs to consider.
Past trends, however, may be a source of comfort for those who remain skeptical. Given that prices will eventually rebound after a short period following the elections, a little risk today may pay off in the long run. For buyers, now is the time to take out your wallets or check books before 2018 hits. Those who are willing to take that leap of faith may be rewarded by the comforts of a new home at a more affordable price. For sellers, having properties listed a year before or after the election would be the best move. With the right timing, homes can be sold at more favorable prices compared to election year, and this can easily translate to larger earnings.
Whether it’s election year or not, the key to success in the real estate market is timing. With the right price, location and agency in addition to a vast amount of resources at your disposal, the choices you make can always lead to big results.