With 2016 being an election year, everyone is wondering what effect a change in leadership will bring to their doorstep for the next 4-8 years. While pushing major change through the houses on Capitol Hill is harder than eating only one Thin Mint Girl Scout Cookie, the idea of change can cause market fluctuations as well.
Presidential elections mirror the underlying tone of the U.S. economy and ultimately the mood of voters or today’s consumers. Consumer spending accounts for two-thirds of U.S. economic activity and proof that voters do indeed vote with their pocketbooks. The real estate market tends to reflect the health of the U.S. economy as a whole, and more specifically, consumer confidence in that economy.
When the economy is prosperous, voters are optimistic and confident. This leads to increased consumer spending and revived enthusiasm for real estate. Homeowners and potential homeowners enthusiastically enter the real estate market which drives up property values. If voters are more prosperous than they were 4 years ago, they will seek to return those same politicians in office.
Conversely, a lackluster economy shows low economic growth, high unemployment and stagnant wages. Consumer confidence falls which applies downward pressure on consumer spending. These dominos topple and cause a downward trend in homeownership and prices as well. In a lagging economy, expect voters to change to drivers at the helm in hopes of improving their prospects for the next 4 years.
So where are we now?
We are cautiously optimistic for a good year in the real estate market.
- The housing market has recovered and continues to perform well.
- Interest rates are still low to encourage economic growth.
- Job and income growth are both positive as well.
- New home sales will jump and be one of the biggest stories for 2016. (This will help to absorb some of the pent-up demand currently in the market)
What could cause problems for the real estate market in 2016?
- Supply of homes is still well below the long running average.
- The share of first-time buyers is still low
- Affordability is a key concern for everyone
Home owners in the real estate market rarely have the same reasons for selling their homes. They are not always motivated by price or money in the bank. They can be motivated to sell because of a job change, a family expansion, wanting to trade up, martial changes, or perhaps health or a child’s special education needs. So regardless if it is an election year, or the economy is up or down, a home owner may need to sell. They will hold out for the highest price or settle for the best price and move on.
Potential buyers seem to be the same in that they are all motivated by different life factors as well. Most purchases are elective yet with different timing and motivation. Buyers seem to have no particular urgency in pursuing goals such as trading up or adding another bedroom. Even first time buyers consider several factors like down-payments when they realize that renting doesn’t pencil out anymore.
So how will 2016’s Election Day Tuesday play out? Timing is everything and election-time isn’t really primetime. It’s not really a factor. I believe that we will not see the effect of this election year in the economy and eventually the real estate market until well into 2017.
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Check out this infographic from The National Association of Realtors: