In the residential market, election years are boogeymen.
Major elections bring uncertainty, the theory goes, which in turn tightens consumer purse strings for such big expenses as homes. The effect is most pronounced in the months leading up to the election; talk to any broker this summer and the “election slowdown” is sure to come up.
The only issue: Nobody has really been able to prove this is true.
Several housing economists told The Real Deal they’ve found no empirical evidence of a relationship between the housing market and election years.
“The effect is more on sentiment and psychology than any real activity in the housing market,” Realtor.com senior economist Ralph McLaughlin said.
Still, brokers have to keep up with ebbs and flows of consumer sentiment in order to respond to clients and hit sales targets, and firms do factor political activity into their financial forecasts.
“Real estate brokerages as a whole plan for election years to be slower in Q3 and Q4,” said Serhant’s Ravi Kantha. “That is part of the economic outlook for most companies — it’s an election year, so we should plan on a busier spring and a slower fall, right?”
“Analytically very difficult”
But that perceived electoral slowdown coincides with a typical end-of-fall lull or runs into other anomalies.
“Trying to detangle any trends from an election year becomes analytically very difficult,” McLaughlin said.
Economists such as McLaughlin typically solve for that kind of confounding variable with econometric models built off of large data sets, but analyzing election years leaves only a handful of observations — Redfin, for example, only has data going back to 2012 — with which to work.
That data includes one election year, 2020, when there was also a global pandemic. The 2008 election year data captured the generational housing market collapse more than the Obama-McCain showdown.
Longtime series “weed out those other things that are changing simultaneously” to isolate the effect on the market to the political election, said Michael Seiler, professor of finance and real estate at William & Mary. “But the small time period, a small number of observations, there’s no way you’re going to do that.”
Think local
While evidence for election-year impact on the national market is sparse, certain local markets do react.
Perhaps unsurprisingly, Washington, D.C., sees a consistent slowdown in its housing market in the run-up to a federal election, according to Redfin chief economist Daryl Fairweather.
“People’s jobs are impacted, and that can mean that they are literally leaving [Washington, D.C.], so sometimes we will see a delay in home sales up until the presidential election, and then afterwards it kind of comes back.”
“People’s jobs are impacted, and that can mean that they are literally leaving the town,” Fairweather said. “So sometimes we will see a delay in home sales up until the presidential election, and then afterwards it kind of comes back.”
Jonathan Miller, Miller Samuel CEO, took a look at the Manhattan co-op housing market during federal elections dating back to 1990 and found that sales in the months of August, September and October were more than 10 percent lower in election (even) years than non-election (odd) years.
It can be hard to parse any real meaning across the endless data sources, time ranges and market choices. And that might be okay.
“Quantitative work is not the only type of methodology out there,” McLaughlin said. “The qualitative side to research — that’s not to be discounted. Talking with folks and understanding sentiment is a very legitimate way to try to triangulate what’s happening in this world.”
What about this year?
Even if the election year swoon has held true in previous years, there may be reason to believe that 2024 might be different.
Potential rate cuts loom over the latter half of the year, with some predicting a cut as soon as September, which Redfin’s Fairweather said would be “much more motivating for people” than pre-election jitters.
The lack of cuts thus far has also contributed to a teakettle of demand that could reach its boiling point sooner rather than later.
“You have two-and-a-half years of pent-up demand,” Miller said. “It makes me think that if there’s just the smallest rate cut, there’s going to be a short-term burst in activity, and that happens immediately.”
The election itself looked to be losing some of its drama as former President Donald Trump stretched his lead over President Joe Biden to three points in the summer. The two candidates also had both already held the highest office, giving consumers a clearer picture of what either presidency would look like. (McLaughlin also pointed out the pair’s housing platforms have far more in common than other policy planks.)
But Biden’s withdrawal from the race in mid-July eliminated that confidence. Vice President Kamala Harris, the presumptive nominee, has polled slightly better against Trump, and a tight race could give homebuyers pause.
As the variables pile up, the ability to know what any given election year will hold — either through data or experience — becomes ever hazier.
“With poor data like this, you’re going to have to rely on a little bit of speculation and a little bit of intuition or theory,” Seiler said. “But you’re really not going to know the answer.”