3 Reasons the Election WILL NOT Impact the Real Estate Market:

The U.S. housing market has been all over the place in the last few years. First, it was cold, then it was hot, then it was cold again… but also more expensive (than ever!?). These changes were all tied to big headlines. “Pandemic!” “Inflation!” “Interest Rates!”

Today, our hottest headlines revolve around a highly contentious and fast-approaching U.S. presidential election. We’ve already seen an assassination attempt and a shocking switch-up in nominees (plus a lot of wild memes), and we still have months of surprises ahead of us. The million-dollar question is: How is all of this going to impact real estate?

Actually, elections and the drama surrounding them have little to no measurable impact on the housing market. While this is bound to be a tense race to the polls, I’m here to tell you that when it comes to how this election will impact the real estate market, we need to be prepared for a big, fat, juicy… nothingburger. Here are three reasons why:

The Fed

One of the primary drivers of the real estate market is mortgage interest rates. You might think that The Federal Open Market Committee (“The Fed”) sets mortgage interest rates, but that’s not exactly true. The Fed sets the Federal Funds Rate which does not directly influence mortgage rates (mortgage rates are more closely correlated to the 10-Year Treasury Yield), but the two do tend to move in tandem, influenced by similar trends and data.

The Fed is technically a government agency, but it’s a nonpolitical entity by design. It doesn’t care who’s in office, it cares that the health of the U.S. economy is intact.? If the economy is struggling, the Fed needs to craft a strategy to put it back on the right course, plain and simple. It doesn’t dabble in politics; it reacts to facts. When the economy is too slow (recession), the Fed sets lower rates to stimulate market activity. When the economy is too hot (inflation), the Fed hikes rates to restrict spending. So, even if The Fed’s methods must shift, its goals will not change due to the election.

Executive Policy

While our future president’s policies can and will impact the housing market, proposed policies take time to enact and many campaign promises never come to fruition. The election guarantees that the president-elect will have the opportunity to shape policy in the next four years, but not the impact those policies will have.

One major challenge the housing market faces is chronically low housing inventory, which is a result of structural issues that need to be addressed in the long term. Our next president will likely take action to improve housing supply and affordability - after all, a solid housing market is good for any administration. However, the parties would use different mechanisms to do so, namely regulatory vs. nonregulatory methods.

Regardless of the methods used, change doesn’t happen overnight or often even in a single presidential term. Policies don’t happen in a vacuum; innumerable factors will play out to determine the direction of the housing market, and the election isn’t one of those factors.

Supply & Demand

The fundamentals of the real estate market, like all markets, are contingent upon supply and demand. Any myriad of factors can impact supply and demand, but outside of seismic events (like, oh I don’t know, a full-blown economic meltdown, or a global pandemic) these changes tend to be cumulative, slow-moving, and impact different geographic regions differently. Essentially, the housing market is a cornerstone of our society and it is far too complex to be impacted meaningfully by something as mercurial as political election cycles.

The Proof

Fortunately, you don’t need to take my word on any of this. The good folks at Keeping Current Matters assembled the following charts using data from the National Association of Realtors (NAR) and the Department of Housing and Urban Development (HUD) which reflect the most recent elections and their impact, or lack thereof, on the housing market.

You can see in these graphs that in most years following an election, home sales and prices improved in the year following the election. But these graphs show a correlation, not causation. What they don’t show is any insight into why the housing market did what it did. I could create a graph that showed the years when my favorite football team won the superbowl transposed over the years that it snowed in NYC and probably find some sort of correlation. My point? The fact that elections happened in these years has nothing to do with how the real estate market performed the following year.

If you want to understand what moves the real estate market, ditch the splashy headlines and begin following the dry economic data and policies that shape it. Then, keep it up over the long term. Or even better, just keep following me—I’m years deep in the data, and I’ll always jump at the opportunity to share my thoughts.