New: 🧠 Market Minds Issue #034

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Elections and the Housing Market

As the 2024 Presidential election approaches, many potential homebuyers and sellers question how this significant event might influence the housing market. It's a valid concern, given that purchasing or selling a home is one of the most substantial financial decisions one can make. In this article, we'll delve into the historical data to see how past Presidential elections have affected home sales, prices, and mortgage rates.

Home Sales During Election Years

Temporary Slowdowns

According to Ali Wolf, Chief Economist at Zonda, home sales during election years tend to mirror those of non-election years, with a notable exception in November. During this month, there is often a slight decrease in home sales, which Wolf attributes to the uncertainty and hesitance people feel about making significant decisions during pivotal times. However, this slowdown is generally short-lived:

Despite this temporary dip, historical data from the Department of Housing and Urban Development (HUD) and the National Association of Realtors (NAR) indicates a robust rebound in December, with sales typically increasing in the year following the election. The graph provided (not shown here) illustrates that after nine of the last 11 Presidential elections, home sales have increased in the subsequent year.

Home Prices Rise, Transactions Dip

In May, the housing market experienced a slight decline in existing-home sales, while the median sale price surged to a record high. This trend reflects ongoing challenges and shifts within the real estate sector.

Sales Trends and Economic Implications

According to the latest data from the National Association of Realtors (NAR), existing-home sales decreased by 0.7 percent from April to May, marking a seasonally adjusted annual rate of 4.11 million. This decline represents the third consecutive month of falling sales, with a 2.8 percent drop on an annual basis.

Lawrence Yun, NAR's Chief Economist, commented on the situation:

Builders Are Catching Up, Not Overbuilding

The Surge in New Builds: A Sign of Recovery, Not Excess

You may have noticed an increase in the availability of brand-new homes on the market. Currently, about one-third of all homes for sale are newly constructed. This shift in the market dynamics might raise concerns reminiscent of the 2008 housing crash, where an oversupply of homes was a contributing factor. However, the circumstances today are markedly different.

Why 2023 is Not a Repeat of 2008

The memory of the 2008 housing market crash still lingers in the minds of many. At that time, an oversupply of homes, including those from builders, played a significant role in the market's downfall. Today, the increase in new home construction is not a sign of overbuilding but a necessary catch-up. For years following the 2008 crash, there was a significant period of underbuilding, which the market is only now beginning to recover from.

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TL;DR (Too Long; Didn’t Read)

As the 2024 Presidential election approaches, potential homebuyers and sellers are concerned about its impact on the housing market. Historically, home sales during election years show a temporary slowdown in November due to uncertainty, but they typically rebound in December and increase in the year following the election. Despite recent declines in existing-home sales and record-high median sale prices, more inventory is expected to stabilize the market. The current increase in new home construction is a recovery from years of underbuilding, not an indication of overbuilding like in 2008.

Have a great weekend - we’ll see you next Saturday.

Cheers 🍻

-Market Minds Team