Housing Market Breathes Post-Election Sigh of Relief
November 9, 2018
A split Congress will add a dose of stability amid already strong economic fundamentals
U.S. voters handed home sellers and buyers—regardless of their political persuasion—a double shot of stability on Tuesday.
Research has shown that home sales tend to spike following elections as political clarity is restored, at least in the short-term. Now, add to that the Democratic takeover in the House in January, and the housing market has a congressional power split that will stymie hasty policymaking.
“Elections generally slow down the housing market because people are feeling unsure about what’s next,” said Selma Hepp, chief economist and vice president of business intelligence at brokerage Pacific Union International.
A renewed sense of stability will “bring confidence to the buyer and seller community,” Ms. Hepp added. “I think it may also provide a little bit less volatility in the financial market, which is a big driver in the luxury sector.”
Investor confidence sent the stocks of major U.S. companies soaring the morning after the midterm elections, which saw Democrats picking up at least 222 seats in the House and Republicans gaining at least two seats to maintain their control of the Senate. By closing bell Wednesday, the Dow Jones Industrial Average had risen 545 points, or 2.13%, and the S&P 500 was up over 2.12%.
Strong economic fundamentals also favor robust home sales moving forward.
The unemployment rate is now at its lowest level in nearly 50 years at 3.7%, and wages grew by a resounding 3.1% in October from a year earlier, the Labor Department reported last week.
“We expect mortgage rates to rise and the economy to grow and home prices to grow,” said Danielle Hale, chief economist at Realtor.com. “A lot of these things are tied to the economy rather than to the political situation.”
The sense of certainty following Election Day extends to the local level, where the electorate weighed in on a number of housing- and development-related ballot measures in states like Florida and California.
Voters in the Sunshine State approved separate constitutional amendments that will limit the tax burden on property owners. One will increase a property tax exemption for homesteads, while the other will permanently cap the annual increase to property assessments at 10% for non-homesteads, which include rental buildings, vacation homes, vacant land and commercial property.
Miami-area voters also approved plans for two infrastructure projects that will give a boost to their local economies: a soccer stadium east of the airport backed by David Beckham and a Miami Beach Convention Center hotel. Both could stimulate the surrounding areas, said Madeleine Romanello, a residential and commercial broker at Compass and vice chair of the Miami Beach Chamber of Commerce.
The election of another Republican governor, Ron DeSantis, means that taxes are unlikely to rise in the state, where the residential real estate market has boomed in the wake of federal tax changes that made low-tax states like Florida a more appealing place to live and work, Ms. Romanello said.
“People and companies are moving here because there’s no income tax. It doesn’t matter what side your on, that’s probably a good thing,” she said, adding that she’d seen a major slowdown in deals ahead of Election Day. “I’m hoping things will pick up again. Now that we know where we stand, we can concentrate on other things.”
Californians, by contrast, shot down two housing-related propositions, one of which would have greatly benefited wealthy, middle-aged homeowners.
Proposition 5 would have expanded on a rule from 1978 that held property tax hikes across the state to 1% of the value of the home and limited the annual increase to assessed value at 2% or less. The new proposition would have allowed homeowners over 55—as well as disabled people and victims of disaster—to take that radically low property tax and apply it to any new home purchases anywhere in the state, no matter how expensive.
In theory, it could have been a boon for luxury home sales as it would have incentivized wealthy people to scale up, but it would have eventually cost the local governments an estimated $1 billion per year, The Los Angeles Times reported.
Voters shot down Prop 5 with a 58% majority, as well as another measure that would have expanded rent controls across the state.
Meanwhile, a split Congress means there’s zero chance of change in the near-term to the landmark tax overhaul passed in December, which disproportionately hit expensive, high-tax housing markets like New York, said Donna Olshan, president of Manhattan-based brokerage Olshan Realty and author of a weekly market report.
The median sales price in Manhattan has dipped around 4% since a year ago and sales have declined by more than 10% in the 12 month through September, Mansion Global previously reported.
“In terms of real estate in New York, our decline precipitously coincided with the Republican ‘revenge’ tax. Until that gets rewound, we won’t see any dramatic change,” Ms. Olshan said. “The election now is not going to affect Manhattan real estate short term in anyway.”
Policy reform for the next two years will now depend on cooperation between both parties.
On Wednesday, leading Democrats were already talking about using their new position of power to push for more infrastructure spending, a campaign promise of President Donald Trump’s that garnered support from the real estate industry.
“Infrastructure is really important for housing development,” said Daryl Fairweather, chief economist at Redfin, adding that Redfin’s research shows “places that have better infrastructure to transportation are more highly valued. But I don’t know that they will be able to cooperate.”