What Happens To Real Estate in an Election Year?
Published by Jordan Girard on October 25th, 2020
Election years have significant impacts on the financial and real estate markets. There's uncertainty. Democrats and Republicans have different plans for taxes, the economy, the stimulus, and more. The commercial and residential real estate markets are no exception. While many articles have already covered the topic of real estate in an election year, the situation we face in 2020 is unique for various reasons. Not only are we facing an election, but we also have an election during a global pandemic. That adds a layer of uncertainty that didn't exist in prior election cycles.
So, what precisely is the data telling us will happen to real estate in an election year amidst a global pandemic?
Real Estate in an Election Year: Sales Slow Down
During a normal election cycle, sales tend to slow. Between 2008 and 2019, the New York coop sales velocity has decreased by 13% starting as early as July. Velocity tends to pick up right after the President is announced. This piece of information adds a layer of uncertainty about when the outcome of the 2020 election will be announced. Certain sources state that it could take months before the winner is made official.
Investors are both afraid and excited at the prospect of a change in the presidency. That psychological aspect means that people tend to act more emotionally and less rationally. Prices may not go down (it takes a long time for this to happen), but investors will hold off on making investment decisions.
This Year Isn't Normal for Many Reasons
2020 is not a traditional election year. The COVID-19 pandemic continues to surge across the United States, with many experts predicting that the next 6-12 weeks will be the most difficult. That puts election day right in the middle of the pandemic's potential peak (the much-talked-about "second wave"). It also means that the pandemic's gravest effects could potentially be during a transition of power.
Interestingly, COVID-19 has not affected home prices quite the way one would expect. A combination of record-low interest rates and sellers wary of putting their homes on the market has kept prices stable. Given that we're talking about real estate in an election year and that will also contribute to this slowdown, it's not inconceivable that supply for the real estate market will continue to be minimal.
However, prices holding firm is certainly not the story for every area and every sector of the real estate market. Markets like San Francisco and New York are finding significant issues with the rental market. People are fleeing higher costs of living and higher crime rate areas in favor of lower housing prices and safer cities. We also see a similar trend in home prices. More affordable cities (a lot of which are located in the sunbelt) are witnessing prices surging.
Given that more and more companies permit remote work, we expect this trend to continue beyond the election. There will, quite simply, be less incentive for people to accept the downsides of an expensive housing market when they can work anywhere.
Real Estate in an Election Year and During a Pandemic
These next few months will be interesting for the real estate market as a whole. With the election and the pandemic, the data shows us that the supply of homes will tighten. This phenomenon occurs for both COVID and the election cycle, so having both combined will constrict supply significantly. Reduced supply might keep prices elevated, even if sales slow down dramatically. If you're looking for a fast turnaround when selling a property, this is not the year!
Put another way, the election and COVID are reducing liquidity. Flippers and short-term buyers should prepare themselves to hold on to their real estate longer than previously anticipated.
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Real estate in an election year tends to see sales slow down. The COVID-19 pandemic is having the same effect, with sellers and buyers wary about committing to closing deals amidst a global virus and broad financial uncertainty. Investors should expect less liquidity in real estate as it becomes both harder to source qualified buyers and sellers.