Navigating Real Estate Uncertainty During Election Year and Economic Shifts

As we approach the 2024 election, many potential buyers and sellers are wondering how the real estate market will be impacted by both the election and broader economic factors. While it’s natural to feel uncertain, historical trends and the latest Federal Reserve data can provide clarity on what to expect in the coming months.

Historical Impact of U.S. Elections on the Real Estate Market

Election years introduce uncertainty, and this often impacts the real estate market. However, historical data shows that these effects are typically temporary, and post-election rebounds often lead to price increases and increased market activity. Here's a more detailed breakdown of how different election years have affected the housing market:

2000 Election (Bush vs. Gore)

The 2000 election was highly contentious, with a prolonged period of uncertainty due to the Florida recount. This led to a temporary decline in consumer confidence, impacting the housing market.

Home Sales: Sales declined by 1.5% in Q4 2000 due to election-related uncertainty. The market's hesitation was driven largely by the unclear outcome of the election.

Post-Election Rebound: Once the Supreme Court ruled in favor of George W. Bush in December 2000, the market rebounded quickly. By Q2 2001, home sales had increased by 4.2%, as consumer confidence returned and economic uncertainty subsided.

2008 Election (Obama vs. McCain)

The 2008 election took place during the Great Recession, which severely impacted the housing market. Though the election itself played a smaller role in market dynamics, federal interventions post-election helped stabilize the market.

Home Prices: By the time of the election, home prices had fallen by 18%, and home sales dropped 13% from September to December 2008. The market was already struggling due to the subprime mortgage crisis.

Federal Intervention and Recovery: After Barack Obama’s election and the implementation of the Housing and Economic Recovery Act and the stimulus packages in 2009, the housing market began to stabilize. By mid-2009, home prices were showing early signs of recovery, and by 2010, sales were up 6% compared to the previous year.

2012 Election (Obama vs. Romney)

The 2012 election occurred as the country was recovering from the financial crisis. While market uncertainty was lower than in 2008, there was still hesitation leading up to the election.

Home Prices: The housing market saw a slowdown in the months before the election, with home prices increasing by only 3% compared to the previous year. Many potential buyers delayed decisions until after the election.

Post-Election Growth: After the election, housing prices grew significantly. By Q1 2013, home prices were up 8% year-over-year, signaling renewed consumer confidence and a stronger economic outlook.

 2016 Election (Trump vs. Clinton)

Leading up to the 2016 election, there was notable market hesitation as buyers and sellers awaited the outcome of a highly divisive race. This uncertainty caused a short-term slowdown.

Home Sales: In the months leading up to the election, home sales dipped by 4.8% in October. Many buyers held off on making purchases due to concerns over economic policy changes.

Post-Election Surge: Following Donald Trump’s election, home sales surged by 6.6% in December, and housing prices increased by around 5% in the following six months. The rebound was driven by improved consumer confidence and expectations of favorable business policies.

 2020 Election (Biden vs. Trump)

Despite the ongoing COVID-19 pandemic, the real estate market experienced significant growth during the 2020 election cycle. Low mortgage rates fueled this growth, even as political uncertainty lingered.

Home Prices: During the 2020 election, home prices continued to rise due to historically low interest rates. National home prices increased by 9% in the months before the election. Unlike prior years, the pandemic-driven housing boom overshadowed the usual election year hesitation.

Post-Election Growth: After the election, home sales jumped by 23% compared to the previous year, driven by the continuation of low mortgage rates and increasing demand.

Federal Reserve’s Role in Shaping the Market

While elections bring temporary uncertainty, the Federal Reserve’s control over interest rates and monetary policy has a more profound and lasting impact on the housing market. The Fed’s decisions can either stimulate or cool real estate activity depending on whether it lowers or raises interest rates.

How the Fed Influences Real Estate:

• Interest Rates: The Fed directly affects mortgage rates through its control of the federal funds rate. Lower rates make mortgages more affordable, driving up demand for homes. In 2024, the Fed cut rates by 0.50%, bringing the federal funds rate down to 4.75%-5%.
• This reduction has already caused the average 30-year mortgage rate to drop from 7.5% to 6.9%.
• Inflation Control: Inflation plays a crucial role in housing affordability. The Fed’s decision to lower rates has been partly in response to inflation cooling from 9.1% in mid-2022 to 2.5% in 2024.
  

Historical Examples of Fed’s Impact:

• 2008 Financial Crisis: After the 2008 election, it was the Fed's near-zero interest rate policy that helped the housing market recover, not solely political changes.
• Post-2016 Election: Although there was initial market enthusiasm after Trump’s election, the Fed raised interest rates multiple times in 2017, which tempered housing growth more than any direct policy changes.

Why Pre-Election Slowdowns Can Benefit Buyers

Although the months leading up to an election often see reduced market activity, this slowdown can present a prime opportunity for savvy buyers:

Less Competition: With fewer buyers actively seeking homes, you may face less competition. In previous elections, like 2016 and 2020, market slowdowns before the election led to opportunities for buyers to negotiate better deals. Once the election is over, the market typically rebounds, driving up both competition and prices.

Post-Election Price Increases: Historically, home prices rise after the election. In 2016, for example, home prices increased by 5% in the six months following the election as consumer confidence rebounded.By purchasing during the pre-election slowdown, you could benefit from this post-election price appreciation and build equity faster.

Interest Rate Advantages: With the Fed cutting rates in 2024, mortgage rates are already starting to drop. Locking in a mortgage now, before further rate cuts or market changes, could allow you to secure a more affordable rate. This mirrors the trend we saw after the 2020 election when rate cuts drove home-buying activity.

Post-Election Market Rebound

After the election, real estate activity often picks up quickly. Buyers who waited out the uncertainty rush back into the market, driving competition and raising prices. This pattern has been evident in past elections:

• 2020: The market surged by 23% after the election, driven by renewed consumer confidence and favorable interest rates.

• 2016: Similarly, the market saw a 6.6% jump in sales immediately following the election, with prices rising in response to increased demand.

By acting before the election, buyers can avoid this post-election surge in competition and potentially secure a better deal.

Final Thoughts: Capitalizing on Election Year Trends

While uncertainty is natural during election years, history shows that these periods can offer unique opportunities for buyers. Pre-election slowdowns provide less competition, favorable interest rates, and the chance to capitalize on post-election price increases. By purchasing before the election, you position yourself to benefit from the post-election rebound in market activity.

At Red Sign Real Estate, we are here to help you navigate these trends and make the most informed decision possible. Whether you’re looking to buy, sell, or invest, our team is ready to provide personalized advice and guide you through this period of uncertainty.

Reach out today for more insights and to explore current opportunities before the market heats up!