Election Effect on Real Estate

I am writing this in late October as we look to see what the November election will bring us. The presidential race has been brutal and currently in a statistical tie as far as the polls show.

It is too bad the results will depend on only a few swing states. Whatever the outcome is this November, let’s look at how presidential elections affect real estate and what we can expect in the real estate market.

I have commented many times in this column that incumbent presidents will do all they can to insure a strong economy during election years, thus helping their re-election back into the office. If termed out or not running again themselves, they can use a strong economy to try to elect someone else from their own political party.

President Joe Biden’s actions the past couple of years illustrate this point well. Our economy has rebounded from the recession of the pandemic. Inflation finally has come down and interest rates are decreasing. The stock markets have been hitting all-time highs this year. Unemployment is down and the economy is doing better. It seems like Biden has done all he can to make sure the economy is firing on all cylinders heading into this year’s election – initially for him but now for Vice President Kamala Harris.

But specifically, how do the presidential election and fiscal and monetary policies affect our housing market? I went to the archives and researched the historical returns of the Dow Jones Industrial average (DJIA) and real estate appreciation in California and San Francisco. The data are presented in the attached chart. I used DJIA and California single-family home data from 1968 to the present. I was only able to find appreciation numbers for San Francisco from 1982 to the present. Nevertheless, it gives us a correlation on how well the economy and our real estate market performs with respect to the presidential cycle.

Presidents serve four-year terms, and our assumption is they would really want the economy to be performing well going into election years. Remember the phrase Clinton made famous running against Bush? “It’s the economy, stupid!” I have been reading about it more and more lately, and I am sure that all presidential candidates are well aware of it.

If you look at the chart, the number that jumps out is the return on the DJIA averages 15.71% during the presidential pre-election years. It is about twice as high as any other year. The midterm years are low. During the first year of a presidential term, the president has the benefit of a good economy and implements their programs or discontinues the ones he doesn’t like. In the second year of his term, if it goes well, he can take credit. If it goes badly, he can blame the previous administration. In the third year or pre-election year, he better be sure to kick the economy into gear or risk losing re-election. The election year is where everything is more stable and trending up. These numbers confirm our supposition that there is a conscious effort to bolster our economy going into the election.

If we examine the home appreciation in California and San Francisco, our prices follow the general DJIA. This is also logical as real estate is a lagging indicator, meaning it will go up after the economy has rebounded and jobs have been created. Real estate appreciation is usually the function of a strong job market. Thus, if we believe what history is telling us, we should have good appreciation these next few years.

Currently, our real estate market is moving along steadily and uneventfully. The mortgage rate actually went up a little in October after the Federal Reserves dropped the rates in September because lenders had already anticipated the move and acted accordingly.

We will have an exciting election on Nov. 5. If you have not voted already, I encourage you to go and vote!

John M. Lee is a broker with Compass specializing in the Richmond and Sunset districts. If you have any real estate questions, call him at 415-465-0505 or email johnlee@isellsf.com.