Education and Articles

The Election Year Effect – Real Estate and Economic Trends Unveiled 

The Election Year Effect on Real Estate and Economic Trends

The 2024 election is upon us, and with it comes a familiar feeling. 

Uncertainty.  

However, will this election year be a rollercoaster for the real estate investments? Or, will this give them a chance to capitalize on market shifts?  

If you are wondering how the election will impact the economy, real estate business, housing market, and your investments, you’re in the right place!

Today, RSN Property Group will get deep into the “Election Year Effect”.  We’ll explore recorded trends, analyze current market conditions, and check out potential options for the real estate market.  

Is the Fed more influential than politics?  Will interest rates rise or fall?  What about housing prices?  Get all the answers here!

The Economy During Election Years

Election years stir the economic pot, influencing everything from consumer confidence to investment strategies. 

Let’s check out how these pivotal periods shape the core of the U.S. economy.

Historical Economic Performance

First, let’s check the economic trends during election years. Here you can check the GDP growth rates, employment statistics, and consumer spending patterns. They offer a window into the past and possible clues about the future.

  • GDP Growth Insights: Election years often see slightly lower GDP growth than other years. Notably, 2008 saw the financial crisis and election-related uncertainty reduce GDP growth by 0.2-0.3 percentage points. On average, the U.S. economy grows faster at 4.3% when Democrats win, compared to 2.5% with Republican victories.
  • Employment Evolution: Employment growth has steadily evolved from 2.21% in the 1970s to 1.82% from 2020-2022. A closer look reveals that four of the top five presidents in terms of total jobs added were Democrats.
  • Consumer Spending Patterns: Generally, consumer spending increases during election years, evidenced by a rise in sales levels two weeks following the 2016 election. However, the 2008 financial crisis led to a significant drop in consumer spending. Overall consumer spending also fell 6% YoY during the weeks of the past two presidential elections.
  • Economic Voting and Recessions: Voters often judge incumbents based on the economy’s performance before elections. Over the past 110 years, the incumbent has lost if a recession started within two years of an election. On the other hand, post-World War II, incumbents are undefeated if there is no recession.
  • Historical Economic Trends: Economic conditions have always influenced U.S. elections. From 1792 to 1840, early presidents encountered recessions in 54% of election years. More recently, economic downturns have led to election defeats for incumbents or their parties in 1976, 1980, 1992, and 2020.

Let’s Know The Stock Market Trends in Election Years

Now, let’s focus on how historical election years have influenced stock market volatility and investor sentiment, alongside a look at the performance data during these pivotal times:

  • Volatility Patterns: While one might expect election years to bring heightened volatility, the reality is more nuanced. Analysis from 1928 to 2020 reveals that the stock market had positive returns in 20 of 24 election years. Interestingly, volatility during election years is typically lower than in non-election years.
  • Investor Sentiment: Election years can inject a dose of uncertainty into investor sentiment due to potential policy shifts. However, as uncertainty wanes, the market tends to gain momentum as the year advances.
  • Market Performance Trends: The “Presidential Election Cycle Theory” claims that the stock market’s best year is typically the third year of a presidency. Real-world data, including the Obama and Trump presidencies, debunks this and shows that market outcomes can defy expectations.
  • 2008 Financial Crisis Outlier: The 2008 election year was memorable for a significant market downturn, with the S&P 500 dropping by 37.0%, the steepest election-year fall recorded. However, the global financial crisis rather than the electoral process caused this.
  • Investment Strategies: While the temptation to tweak investment strategies based on election cycles is natural, relying solely on historical patterns can be misleading. A sound approach emphasizes a long-term, diversified investment strategy. Trying to time the market based on electoral cycles rarely works.

What About Real Estate Dynamics During Election Years?

So now you’re probably wondering what part residential real estate dynamics play when presidential election years roll around. 

The answer is that it’s a bit of a rollercoaster. 

With the uncertainty of new policies and economic shifts, buyers and sellers in the housing market (which heavily overlap with demand and activity in the commercial multifamily market) tend to pause, leading to a November slowdown. However, as the dust settles by December, the market springs back to life, ready for its next move. 

Let’s break down the details backed by data.

Trends in Housing Prices, Sales Volume, and Mortgage Rates

Historical data shows that election years often slightly damper housing market excitement. For instance, a study by movoto.com found that house prices tend to rise just a bit slower— 1.5% less compared to the year before an election and 0.8% less than the year after. Home sales follow suit, ticking up by only 0.4% during the key months of October and November in election years. Meyers Research indicates a more pronounced dip, with median new home sales falling 15%. As for mortgage rates, the economic climate of elections influences their complexities, but without a clear, direct impact from the elections themselves.

Analyzing the Current Real Estate Market Conditions

Fast forward to March 2024, and the real estate market faces unique challenges and expectations. With mortgage rates at significant highs and a notably low inventory of homes, we’re looking at a market in flux. Active listings are just over 1.13 million, with a tight monthly supply of only 3.5 months. Yet, despite these challenges, there’s a cautiously optimistic vibe for a busier spring buying season than last year.

Why? It revolves around the Federal Reserve and whether its anticipated rate cuts breathe some life into the market.

Interest Rates: The Perpetual X-Factor

At RSN, we acknowledge the ongoing dialogue about interest rates and understand why it’s a dominant theme: they are the perpetual x-factor in real estate and the economy. With an election on the horizon, the question of how future rates might sway under new leadership is more relevant than ever.

Rate Trends in Election vs. Non-Election Years

Over the past 40 years, interest rate cycles have tended to precede economic shifts, with four out of five increases followed by a recession within two years. While the Federal Open Market Committee (FOMC) adjusts rates even in election years, it traditionally avoids hikes within two months of Election Day. However, there is a subtle trend: rates tend to rise after a Republican win and fall following a Democrat’s victory. However, this difference is miniscule, and it’s also not ironclad. Broader market fundamentals and economic indicators are more decisive in shaping interest rates.

Forecasting Rate Movements

Anticipation surrounds the trajectory of interest rates. The Federal Reserve will likely keep rates steady, depending on employment and inflation trends. However, keep your eyes out for the Fed’s June 12 meeting, as potentially its first rate cut and a significant shift in monetary policy. Plus, after peaking in the 7%–8% range, mortgage rates should gradually ease throughout the year, aiming to reach between 5% and 6% by year’s end.

Whether you love or hate the Fed or speculate about how they bend the knee to political pressure during election season and tend to cut rates, the historical activity tells a different story:

The truth is the Fed predominantly zeroes in on the economy’s needs rather than the political climate. Sure, they’ve tweaked rates during election years, but that’s more about responding to economic needs than trying to sway votes. 2012 was the only time since the 1950s they didn’t change rates in an election year, and they hiked rates at almost double the frequency of cutting rates, showing economic conditions, not political calendars, drive them. Thus, the market predictions and statements by the Fed indicating cuts this year are tied to economic reasons rather than political pressure.

Making Sense of the Current Year

Finally, no matter which side of the political aisle you sit on, the 2024 Presidential election will profoundly affect the economy, real estate, and financial markets. Here’s a straightforward look at where we stand and what’s on the table:

  • Economic Indicators Show Mixed Signals: The U.S. Leading Economic Index (LEI) dipped in January 2024, but six positive components out of ten for the first time in two years hint at slow yet steady economic activity. A recession is not imminent, and there is cautious optimism.
  • Biden’s Economic Proposals: With a focus on not widening the deficit, Biden eyes raising taxes on the wealthy to fund his plans. Proposals include increasing the top tax rate to 39.6%, the corporate tax rate to 28%, and introducing a 4% tax on stock buybacks. He’s also focusing on supporting first-time homebuyers and addressing racial imbalances in housing access.
  • Biden’s Plan for the Markets: A key feature of Biden’s market strategy is the introduction of a 15% minimum tax on large corporations with income over $1 billion. This move could have wide-reaching implications for big business and the stock market.
  • Trump’s Economic Strategy: Trump’s economic strategy signals a continuation of his trade policies, promising to levy tariffs on most imports. Further, his plan to overhaul civil service protections may affect the economy’s structure and workforce.
  • Trump’s Focus on Real Estate and Energy: Trump’s policies favor reducing costs in the real estate market and cutting interest rates to stimulate growth. His energy policy is also bullish, intending to increase oil drilling on public lands and provide tax incentives to the oil, gas, and coal sectors.

The Election Year Effect: Planning for Market Shifts

The 2024 presidential election year presents a unique opportunity to analyze the potential real estate market impacts. Understanding the previous trends and analyzing current economic impactful factors can change the investor’s ideas. 

The process can change the whole real estate investment strategy. The Federal Reserve has much higher decision-making rights. However, investors should consider housing inventory levels and mortgage rates as well.

Similar Posts