What an Election Year Means for House Prices

Election 2016, courtesy of DonkeyHotey, CC BY 2.0.

This year will bring a whirlwind of new political excitement, but also uneasiness. Presidential election years have many effects on our society. One effect that has been historically popping up during election years is the real estate market’s response. However, since the headlines are saturated with the latest poll numbers and candidates’ remarks, house prices are simply not at the forefront of everyone’s minds during an election year. In this post, I will delve into the effects that these pivotal years have on home prices and what homebuyers and sellers can expect in 2016.

How Is Real Estate Affected by a Presidential Election?

Elections have historically affected house prices with a slightly lower percentage increase in value. According to a movoto.com study of the California real estate market, house prices typically rise 1.5% less during an election year than in the year prior to the election, and 0.8% less than in the year following the election. This may not seem like much, but these percentage differences can add up over time. An election year could potentially cost homeowners thousands of dollars in lost value to their largest assets.

Data from http://www.freddiemac.com/finance/fmhpi/archive.html.

Using the Freddie Mac House Price Index, I looked into the historical effect that election years have on U.S. real estate prices as compared to off years. The off years that are considered are the even-numbered years that fall between elections. Using the percentage increase for the 12^th month of each year in the sample, I found that house prices in the off years increased, on average, by 0.22% more than house prices in election years. The chart (right) details the percentage increases for each year in the sample since 1978. For 2016, house prices are estimated to increase 3%, a drop from 5% in 2014.

According to an economic study published in the British Journal of Political Science, elections cause a decline in the number of home sales as well as a slight price decrease. The decline is greater in tight elections where there is increased uncertainty. This change can be compared to the effect of other market factors, such as growth in per capita income.

Why Do Elections Affect Home Prices?

It may seem a bit strange for a presidential election to affect your home’s value, but the potential explanations for this effect may bring about more understanding. The movoto.com study hypothesizes that election years can be stressful and uneasy for many Americans. And people are less likely to make large purchases, such as a house, in very uncertain times. The results of the election can potentially affect the finances of Americans, so fewer people are willing to invest in a home when their financial future appears to be uncertain or influenced by the incoming president.

Realtytoday.com states that researchers conducted a survey during the 2008 election and found that “the election was really weighing on the minds of the would-be buyers.” Different presidents in their respective parties may have different housing and mortgage policies that may affect buyers in various ways. These risks are concerning to potential homebuyers, and many may choose to wait and buy during a time that appears to be more politically stable.

What Does This Mean for Buyers and Sellers in 2016?

It is estimated that house prices will only increase by about 3% during 2016. This is lower than in previous years, and it could be speculated that this lower-percentage increase could be partially attributed to the upcoming election in November.

Home for Sale Sign, courtesy of Mark Moz, CC BY 2.0.

Although some homebuyers may be skeptical of purchasing a home during the uncertainty of an election year, it could be a good year to buy a home for anyone willing to take on additional uncertainty and risk.

Realtytoday.com states that it is generally harder to sell homes during election years; therefore, it may take longer to find a buyer, and the sales price may be slightly lower than anticipated. For sellers, it may be more beneficial to list your home for sale the year before or the year after an election, if possible. Selling a little sooner or waiting a little longer could mean that the value of the home would be slightly higher, creating a larger payout.

Perhaps buyers and sellers should pay closer attention to the market during election years when considering a real estate transaction. How do you think the presidential election will influence house prices? Let us know in the comments.