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February 15, 2020

Can the 2020 Elections Affect the Housing Market?

With primary season finally underway, we’ve had some homebuyers ask us if the upcoming November elections will have a substantial impact on the housing market. No-one can say for sure; there is no crystal ball buyers and sellers can use to predict the future. However, past election seasons have given us some general indicators that typically repeat themselves during any presidential election cycle. At Ernest Homes, we pay close attention to any market factors that can help our customers make the best decision possible for their families during the home buying process. Here are a few things to watch out for during the next few months.

The “Wait and See” Phenomenon

When a presidential election looms, potential homebuyers may adopt a “wait and see” attitude toward a new home search, rather than jumping in with both feet. If the incumbent has a successful campaign and is re-elected, current tax guidelines and regulation policies are likely to change very little. However, most winning candidates unseating an incumbent have run their campaigns on change, which is likely to include policy reform pertaining to taxes and government regulations affecting housing. Some buyers prefer to wait to buy a home until after they know what the lay of the land will be. This can also be true for homebuilders – if a new government takes a vastly different approach, their projects may have to be put on hold or reconsidered altogether.

The Gap Between Income and Home Prices

When the gap between the average consumer’s income and home prices in the same area is fairly large, and widening, the balance between the price of housing and the income is disrupted. When income remains stagnant or declines, home prices must fall to try and restore balance. Since 2015, the gap has been substantial, according to historical standards. Not surprisingly, it hasn’t been a surprise that the growth of home sales has also fallen steadily since 2015. This type of differential typically appears prior to a recession, which can stall home sales significantly. Candidates with a proven history of increasing wages and creating jobs tend to fare better in elections when this gap is wider.

Pricing Fluctuations

It’s unusual for the prices of homes to go down unless the country enters a recession or depression. Typically, home prices will always face a steady increase as the cost of living rises. Past election cycles, however, have shown that it’s typical for home prices to increase by a lower percentage in an election year than during other years. The California Realtors Association completed a study on this pattern, showing that while home prices typically rose by 6% in the year before an election, and 5.3% in the year following an election, election year increases came in at only 4.5%. If you’re looking to save on the purchase of a new home, acting during an election year can help you meet your goal. 

Tax Ramifications

Our current administration provided the Tax Cuts and Jobs Act, which changed some of the deductions and tax credits for property owners. One of the most significant was a $10,000 deduction on property taxes on the federal returns for first-time homeowners. If there would be a change of party affiliation at the top rung of government, some or all of the recently implemented tax changes could be reversed or modified. Any changes could be game-changing, depending on whether they would decrease or increase home owner’s tax liabilities. Until a new administration comes along, no-one knows what changes may be in the works.

Consumer Confidence

During a strong economy, homeowners typically have more disposable income to spend. During times of economic insecurity, consumer insecurity rises as well. This may cause a rapid shift toward home buying in the next few months, as potential customers either scramble to complete a sale under more favorable economic conditions or hesitate to make a change until the election has decided which party will be leading the country for the next four years.

The Millennial Market

Just over 5 million Millennials will be turning 30 this year, and many of them are in the prime home-buying years of their lives. Off to a slower start than most previous generations, a good number of Millennials are getting married, starting families and buying their first homes this year. As the largest generation, leaving the Baby Boomers far behind, the sheer number of Millennials are also going to prove to be instrumental in the election itself. Whether or not they choose to vote, and who they vote for if they do vote, is going to have a huge impact on the outcome of the 2020 election. Candidates from all parties have different outlooks on the best way to approach policies that affect housing, and whichever candidate’s opinions resonate more with the Millennials will likely find themselves in the driver’s seat if these voters turn out in droves during the election.

Are You Ready to Buy?

With significant consumer confidence, lower taxes, a strong economy and low unemployment, all indicators say that opportunities to buy a new home will remain strong during the 2020 election cycle. Whether opportunities will stay strong or even improve after the election is yet to be determined. In the meantime, if you find the home of your dreams, now is your perfect time to buy!

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