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Wondering how the second half of a typical election year affects the real estate market? In this article David Childers, CEO of Keeping Current Matters, shares encouraging, historical information on what we’ve seen in the past in regard to the number of transactions, home values and mortgage rates.
Mark Twain once said, “History doesn’t repeat itself, but it does rhyme.” An understanding of the typical patterns for markets during election years empowers you to provide your clients with the best information possible to help them make the best decisions for themselves. David Childers and I started the conversation with him sharing how many agents simply don’t give advice based on a fear of not providing “perfect” advice.
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“No one can ever provide perfect advice. What you want to do is to give someone the best advice possible based on the information you have available at that moment. The best analogy of this is the way doctors do this with their patients. There is no way a doctor can give you perfect advice.
“What they do is they sit you down. They say here’s what we see. Here’s what we know, and here is what I am going to prescribe based on this information. Then they will say come back in 30-45 days, and they are going to say, here’s what we see now and based on these changes. This is what we will prescribe now, and it may be different. They are professionals just like we are, and our job is to simply provide our recommendations based on the information we have available at this moment.
“That’s what we are going to do with the information we have on how the markets typically perform in these election years and the year to follow,” Childers said.
How are transaction numbers affected during a presidential election year and the year following?
We then move into the question of how the number of transactions are typically affected by election years. Childers said, “The election cycle does not have a dramatic effect on the overall number of transactions we see until October and November. At that point we see some people thinking I might want to see what’s going to happen and then make my decision on buying or selling.”
Childers shared the chart below that shows the typical seasonal drop in transactions for October and November of 9.8 percent during non-presidential election years. It also shows the 15 percent typical drop in transactions for the same two months during presidential election years. Based on this information, you can see an adjustment in the number of transactions for those two months, but it is not as dramatic as many people think.
“The key is to understand that those transactions don’t go away; they are simply delayed. The real estate business acts much more like an Apple store than a McDonald’s restaurant.
“Think of it this way: If a snowstorm hits the Northeast and people can’t leave their homes, McDonald’s can’t make up for those lost meals sold once the snowstorm passes,” Childers said. “But someone who intended to buy an iPad once the storm passes, they will still go buy that iPad. It is the same with real estate. If someone intends to buy but they decide to hold off, they will eventually buy, and those transactions are not lost but rather delayed.
“That brings us to the historical data on the number of sales in the year after an election year. Home sales went up the year following an election in nine of the last 11 times (see chart below). This makes sense when we realize that although we typically see a slight slowdown in transaction numbers in the fourth quarter of election years, we usually see them show up in the form of year-over-year increases the year following the election year.”
How are home prices affected the year after presidential election years?
Childers then shared the details in regard to pricing: “In 10 of the last 11 years following an election year, new home prices went up year-over-year [see chart below]. The one exception was 2008 and, as we all know, there was a lot going on in the real estate market during that year. This is the data both buyers and sellers need to help them make the most informed decision possible for them and their families.”
What happens to mortgage rates during presidential election years?
One of the biggest questions agents have in the current market environment is interest rates. When asked about how presidential elections affect interest rates, Childers said, “From July to November, interest rates have gone down eight of the last 11 presidential election years. We can jokingly say that gets a few people fired up with how politics might play a part in influencing lower mortgage rates.
“I don’t personally think that is as big of a factor as many believe, but hey, if rates typically come down, we’ll take it. I would anticipate this is what we will see this year with mortgage rates coming down marginally.”
Affordability is affected by 3 main factors
Childers concluded our conversation by saying, “We are sitting at a 40-year low for home affordability. In order to see a change in this trend, there are three main factors that affect the affordability of buying a home, and the key is to recognize the trends in these three factors.
“The first factor is wages. Wages are currently climbing at a faster pace than they have been, and that bodes well for affordability. The second factor is the price of homes. Home prices are not rising at the same pace as they have been. The third factor is mortgage rates. Based on the historical data we’ve discussed, we typically see rates come down in the coming months during election years.
“All three of these main factors that affect affordability are moving in a positive direction, or they are anticipated to move in that positive direction in the near future,” Childers said. “Over time we should see improvements in affordability, and that bodes well for the market in the coming years.
“There is so much noise in the market right now with the National Association of Realtors’ settlement and all the things that are happening in real estate. I would argue there has not been a better time to be the educator in your local market than right now. The agents that are active, that are out there educating their local market, will reap the benefits.”
