4 Reasons Election Results Won’t Disrupt the Housing Market Strength
Housing Market Forecasted to Stay Strong, No Matter What The Election Outcome
Going into the election I heard different thoughts from both sides of the aisle on the impacts the election results would have on the economy broadly and more specifically on the housing market. Turns out I am not alone on my thinking that the election would not be a main driver in the foreseeable future of the housing market. Experts across the board are forecasting the strength of the housing market to continue through 2021. Detailed here are 4 Reasons Why.
1) Millennial Demand is Strong
Millennials are our nation’s largest generation and have been slow to become homeowners. They entered the job market just after the 2008 Recession which left many reeling in student loan debt in a recovering economy that didn’t have many jobs available. Many moved back in with their parents and have been classified to this point as perpetual renters. With the economy gaining strength since then, Millennials have had many more opportunities for gainful employment presented to them. Their newfound ability to save money coupled with them approaching the average age of marrying and of having kids, (2 major drivers of homeownership) they started moving into the housing market, and in strong way. As the Wall Street Journal recently reported:
“Millennials, long viewed as perennial home renters who were reluctant or unable to buy, are now emerging as a driving force in the U.S. housing market’s recent recovery.”
2) Mortgage Rates Remain Historically Low
Mortgage interest rates dropping to an all-time low, thanks to the efforts of the Federal Reserve to keep money flowing, have not only bolstered the housing market but actually made the housing market a driver in our economic recovery. Strong demand, from both Millennials and the urban-to-suburban migration currently happening nationwide, alongside this spring’s rate drops have enabled to housing market to not only stay afloat but boom. This is in complete opposition of other major economic disruptors (pandemic, recession, record unemployment) present in our current economy. Freddie Mac is forecasting interest rates remaining low through 2021:
“Given weakness in the broader economy, the Federal Reserve’s signal that its policy rate will remain low until inflation picks up, and no signs of inflation, we forecast mortgage rates to remain flat over the next year. From the third quarter of 2020 through the end of 2021, we forecast mortgage rates to remain unchanged at 3%.”
3) Home Prices Continue to Appreciate
We have experienced major appreciation since the housing market rebounded in addition record-breaking overall volume of sales in both units sold and total dollar volume. As inventory levels have dropped, buyer demand continues to exceedingly surpass inventory levels which only strengthens home value appreciation. This is evidenced through a shorter marketing time in October than in July and August in addition to homes on average selling for above the listing price. To put that in perspective the average sale price was never over the average listing price in the most recent housing recovery post-2008. Strong years of appreciation produced sale prices hovering in the range of 98-99% of the listing price. The average sale price in North Lake Tahoe including all condo and single-family homes was at 101% of the listing price! That means the high end of the market is going for over asking as well! In Truckee it remains that the sub $1 M sales are selling for 3-4% over asking on average, which is crazy in and of itself! Lack of inventory and strong buyer demand is a nationwide trend that is not expected to be going anywhere anytime soon.4
4) Because of History
Yes, it’s true that historically there is a slight economic slowdown in November of a presidential election year. And it is also true that historically the economy regains its pace quickly thereafter. From the Homebuilding Industry Report by BTIG:
“This may indicate that potential homebuyers may become more cautious in the face of national election uncertainty. This caution is temporary, and ultimately results in deferred sales, as the economy, jobs, interest rates and consumer confidence all have far more meaningful roles in the home purchase decision than a Presidential election result in the months that follow.”
Ali Wolf, Chief Economist for Meyers Research, also notes:
“History suggests that the slowdown is largely concentrated in the month of November. In fact, the year after a presidential election is the best of the four-year cycle. This suggests that demand for new housing is not lost because of election uncertainty, rather it gets pushed out to the following year as long as the economy stays on track.”
The Takeaway
There is no question that the recent election has been incredibly divisive and contentious. Many sectors will be impacted by the outcome of the election. Regardless experts believe and evidence shows that the housing sector will remain a, if not the, driving factor in our economic recovery.