By Pete Gerardo
Hillary Clinton or Donald Trump. Whichever candidate wins the White House will have the power to shape the nation’s housing market and overall economy for years to come.
What you may not know is that presidential elections themselves can affect everything from mortgage rates and housing prices to stock market values and corporate investment.
A range of studies show that — during a typical election year — the uncertainty produced by the race can have more impact on housing and the economy than the actual outcome in November.
Of course, the 2016 election is anything but “typical.”
Click to see today’s mortgage.
Voters: “Two Flawed Candidates”
To start, both Clinton and Trump are viewed negatively by large swaths of Americans, according to numerous polls. This may prompt large numbers of voters to choose between “the lesser of two evils” instead of backing the candidate who most closely matches their views.
As The New York Times said of Clinton, “You can fairly say … that no presidential candidate has secured a major party nomination after an F.B.I. investigation into her use of a private email server for, in some cases, top-secret national security information.”
And though Trump’s anti-trade, anti-immigrant and inflammatory remarks about women, minorities and Muslims has won considerable support among white working-class voters, it has fractured the Republican Party.
Nobody “has ever seen a major party nominee put financial conditions on the United States defense of NATO allies, openly fight with the family of a fallen American soldier, or entice Russia to meddle in a United States presidential election by hacking his opponent” said the Times. “And while coded appeals to racism or nationalism aren’t new … overt calls to temporarily bar Muslims from entry to the United States or questioning a federal judge’s impartiality based on his Mexican heritage are new.”
Thanks to statements like these, a number of Republicans officials have denounced Trump. Some have even pledged to vote for Clinton.
The result of both candidacies is that the two major parties have essentially switched places, with Republicans now polling better among blue-collar voters (once reliable Democrats), and Democrats doing better with college-educated professionals and many entrepreneurs.
Housing Market is Stronger than in 2012
Fortunately, the U.S. housing market is stronger than it was during the 2012 election, and so is the overall economy.
In November 2012, home sales were rising, but the market was still recovering from the economic downturn of 2008. By comparison, home sales through May 2016 have seen the biggest increase since 2007.
According to the U.S. Census Bureau, the median value for new homes sold in June 2012 was $232,600. By June 2016, that figure had soared to $306,700.
In late 2012, 30-year mortgage rates were 3.34 percent and 15-year rates averaged 2.75 percent. Today, lenders are quoting 30-year rates near 3.25 percent and 15-year rates in the mid-2s.
Unemployment has plummeted from an average of 8.1 percent in 2012 to less than four percent today. In addition, consumer spending in the second quarter of 2016 rose by a whopping 4.2 percent, and retail sales jumped by 3.1 percent over the same period in 2015.
Elections = Uncertainty
Unfortunately, the main byproduct of presidential elections is uncertainty, especially elections in which an incumbent isn’t running.
As a rule, markets don’t like uncertainty — the uncertainty of who will win and (in Trump’s case) of what an inexperienced politician might do in office.
For this reason, business investment and stock markets often become sluggish – and industry can become almost paralyzed – during election years, particularly when the outcome is likely to affect regulation, taxation and trade policy.
“If an election can potentially result in a bad outcome from a firm’s perspective, the option of waiting to invest increases, and the firm may … delay investment until some or all of the policy uncertainty is resolved,” wrote London Business School Professor Brandon Julio in the Journal of Finance.
Since 1833, the Dow Jones Industrial Average has gained an average of 10.4 percent in the year before a presidential election, but only six percent during the election year, according to the Stock Trader’s Almanac.
By contrast, the first year of a president’s term sees an average gain of 2.5 percent, and the President’s second year in office sees an increase of 4.2 percent.
(The biggest exception to this rule occurred in 2008, when the Dow sank almost 34 percent.)
Although Republican candidates are typically perceived as more “business friendly” than Democrats and, therefore, more friendly to Americans’ wallets, research indicates that a candidate’s party affiliation has very little impact on the stock markets.
But again, 2016 is not a typical election.
“Wall Street is very powerful when it comes to the economy, and they don’t like change,” said Matthew Gardner, Chief Economist of Windermere Real Estate, “As such, they are always going to favor the more centrist candidate – in this case Secretary Clinton as opposed to Mr. Trump.
“Markets don’t like uncertainty and … if Trump becomes president, I believe that there will be a massive injection of uncertainty into the markets, and that could negatively impact housing.”
Click to see today’s mortgage rates.
The Effect on Home Prices
A presidential election’s effect on home prices is usually less pronounced than it is on stock values, but most experts say that home values rise more slowly during election years than off years.
“Historically speaking, home prices continue to go up through an election year and indeed the year thereafter,” said Gardner. “However, the rate of growth certainly slows. As far as mortgage rates are concerned, the same thing applies. You tend not to see any rapid rise in interest rates during an election year or … the year thereafter.”
A movoto.com study of the California real estate market reveals that home prices usually rise 1.5 percent less during an election year than in the year before an election, and they rise 0.8 percent less than in the year after the election.
This seemingly small difference could cost homeowners thousands of dollars in lost value.
However, a recent study by the California Association of Realtors (CAR) disputes this conventional wisdom.
“Transitory political events such as presidential elections don’t drive the housing market,” said CAR President Pat Zicarelli. “Market fundamentals such as housing inventory, affordability, interest rates, job growth, and consumer confidence are the real factors that influence the housing market.”
The CAR study found no evidence that elections have a negative impact on home sales or prices. In fact, the study discovered that growth in home sales at the end of an election year — at least in California — actually outperforms non-election years by 7.1 percent.
The authors of the movoto.com study speculate that election years may be stressful for many Americans, making them less likely to purchase high-ticket items — like houses. Because an election’s results can affect their personal finances, fewer home buyers are willing to take the plunge until the dust settles and the new President’s policies become known.
Realtytoday.com reports that it’s usually harder to sell homes during election years, so sellers may want to list their properties either the year before or the year after an election in order to receive the maximum value.
Depending on which real estate experts you ask, home prices are projected to rise by as little as three percent in 2016 or as much as four percent.
The Sound of (Relative) Silence
Housing accounts for around 18 percent of the US economy, and remains one of the most effective ways for Americans to build wealth.
Despite this, and despite campaigns that have often focused on wealth inequality, Clinton and Trump have been relatively silent on housing policy. That’s surprising. It is an issue that affects a large percentage of Americans.
“The next president will inherit the lowest homeownership rate in 48 years and so far the voters have heard little to nothing about what the candidates will do to boost people’s chances of becoming homeowners,” said Nela Richardson, Chief Economist for Redfin.
Of the two contenders, Trump has had the least to say about housing — at least directly.
To date, he has promised to dismantle the 2010 financial regulatory law known as Dodd Frank, which he says makes it impossible for bankers to function. “It makes it very hard for bankers to loan money for people to create jobs, for people with businesses to create jobs,” he said.
No fan of government programs, Trump also pledged to eliminate the Department of Housing and Urban Development, the overseers of the popular FHA home loan program.
However, in a more recent speech about the economy, delivered in August, he made no mention of housing policies or programs.
Clinton, on the other hand, announced in February a number of specific proposals to increase housing affordability and homeownership. However, most seem to target low-income families.
According to enterprisecommunity.com, Clinton’s proposals include:
- Increasing the supply of affordable rental units
- Improving rental assistance recipients’ access to better neighborhoods
- Creating incentives that promote development of new rental housing.
- Investing in high-poverty neighborhoods
- Revamping downpayment assistance programs
- Updating federal underwriting tools that can restrict access to credit.
What Voters Should Ask Candidates
At this stage of the campaign, with the candidates more focused on trading insults, and much of the news media searching for the next scandal, foot-in-mouth statement or Gotcha! Moment, it’s unlikely that housing will get more attention than it’s already received.
If we had the chance — and many voters may get that chance — here are some examples of questions we would ask both candidates:
The homeownership rate has fallen dramatically over the last 15 years. What would you do to help more Americans purchase homes during your term in office?
Which steps would you take to increase — or at least maintain — the supply of affordable housing?
How would you encourage banks and other lending institutions to make credit available to higher numbers of worthy applicants?
Cities such as New York and San Francisco are becoming unaffordable to long-time residents. How would you ensure that current residents — especially teachers, firefighters and police — can afford to live in the same cities where they work?
Currently, the biggest beneficiaries of the mortgage interest tax deduction are the wealthy. For example, a household earning $40,000-$50,000 would receive a tax break of $528 while a household earning $1 million or more would get over $8,000. Will you reform the tax code to give middle-class families a bigger break? If so, what will you do?
When tax credits and subsidies on low-income rental housing expire, many tenants are forced to leave. How would you increase the supply of affordable rental units, and ensure that this housing stays affordable?
Which candidate will most positively affect the housing market?
So far, the answer has depended on whom you ask and which poll you consult.
Back in May (during the primaries), home buyers participating in a Redfin survey favored Clinton over Trump by a margin of four percentage points (25 percent to 21 percent).
However, Bernie Sanders actually topped that poll. Almost 27 percent of respondents said he would be the most sympathetic candidate toward first-time home buyers worried about housing affordability.
In a Zillow poll of 100 economists and real estate experts, conducted at roughly the same time as the Redfin survey, Clinton came out ahead of both Trump and Sanders.
However, a more recent survey conducted by Harris Poll on behalf of Trulia, gave Trump the edge.