The ‘Election Year Effect’

What this means for the price of your home

By Jennifer Hawkins, key2see with Hawkins Poe

The “Election Year Effect” on the real estate market sparks curiosity among many. One of the first questions raised is how an election year influences home prices.

According to Case-Shiller data, home prices have increased by an average of 4.84 percent during election years since 1987, compared to 4.44 percent in non-election years. While this difference is minimal, it suggests that factors other than the election play a more significant role in the real estate market.

Three key elements that have a more profound impact on the market than a presidential election are:

1. Interest Rates

2. Inflation

3. Inventory Levels

Let’s talk about the above-listed scenarios that I believe are affecting the current market.

The Cost of Lending

The real estate market experienced a significant slowdown in 2021 when interest rates surged from 4 percent to 6 percent almost overnight. This sudden increase marked the first major market slowdown in nearly a decade. Despite the rise in rates, low inventory levels helped maintain property values, thanks to the basic economic principle of supply and demand. Currently, 67 percent of potential buyers are hesitant, waiting for interest rates to decrease. At the same time, the market remains at less than two months of available inventory. This suggests that demand is likely to skyrocket once rates do drop, as indicated by a March 2024 survey conducted by PureSpectra.

Inflationary Levels

Directly affecting interest rates, inflation has been a challenge for everyone. When the central bank raises interest rates to combat inflation, borrowing becomes more expensive, leading consumers and businesses to reconsider significant purchases or investments. This reduction in spending typically slows down demand, which can help ease inflation.

Inventory Levels

In the South Sound, inventory has been scarce for over five years. A balanced market typically has six months of inventory, but the region has been hovering around two months or less. This level of scarcity has kept prices from dropping, even during periods of higher interest rates. The same PureSpectra survey revealed that 67 percent of homebuyers are waiting for interest rates to decline. The question is whether this election season will lead to rate drops and increased spending.

The Election Year Effect

What we know is that during election years, uncertainty rises, leading many buyers to sit on the sidelines. November is usually a slower month in the real estate market due to the holiday season and the change in weather. The added uncertainty of an election only amplifies this effect.

Real estate is the long game when it comes to investing. Savvy buyers buy when no one else buys and then sell when everyone else buys. My advice is to partner up with a REALTOR who knows the ins and outs of your needs, paired with the current events, and you will benefit from the growing wealth of owning real estate.