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The 2020 Presidential Election Process and the Mortgage Industry

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Politics aside, the United States holds a presidential election every four years, and we’ll be going through that process once again in 2020. There’s little argument that the upcoming election will be a contentious one. But, what does that mean for the mortgage industry and an already uncertain housing market? Here is what we know based on past experience.

Election Years Can Put a Damper on Home Price Appreciation

Several years back, the online real estate site Movoto endeavored to figure out what happens to home prices during a presidential election year. Their study of home price data from the California Association of Realtors concluded several things:

  • Home prices rose by an average of 6% in the year before an election
  • Home prices rose by 4.5% during an election year
  • Home prices rose by 5.3% in the year after the election

While prices, on average, continue to rise as an election approaches, home price appreciation tends to stall during an election year. The difference of 1.5% may not seem like a lot, but if your home is worth $250,000, that’s a difference of $3,750.

Selling a Home Can Be Difficult in an Uncertain Environment

Buyers are historically more hesitant to jump into the market when they expect that someone new will be moving into the White House. In years where the incumbent isn’t running, this is a given.

A Princeton economist researched this very thing, looking at 73 presidential elections and 35 housing markets. The research concluded that there was a “pre-election” decline in the market when strong policy differences exist between the parties or the presidential race is close.

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Real Estate Tax Rates, Credits, and Deductions Might Change

It happened in 2017 with the Tax Cuts and Jobs Act, and this is still fresh in the public’s mind. There’s no reason to believe that a new administration, or even an incumbent, won’t make additional changes to the tax code that will impact the cost of homeownership.

In addition to adjusting tax brackets, the Tax Cuts and Jobs act impacted consumers as well as the mortgage and real estate sector in several ways by:

  • Limiting the deductions for property taxes
  • Limiting the deductions for mortgage interest
  • Eliminating the moving expense deduction and exclusion

What About the Consumer Confidence Factor?

Much of what happens in this country’s mortgage and real estate space is a function of consumer confidence. The health of the housing market is closely tied to the economy, which might feel some bumps during an election year.

That said, many leading economic indicators remain strong, and Realtor.com's 2020 housing forecast is positive overall. Some of the site’s predictions for the coming year include:

  • Mortgage rates 3.85% on average, and up to 3.88% by the end of 2020
  • Single-family home starts up 6%
  • Existing home sales down 1.8%
  • Median price appreciation on existing homes up 0.8%
  • An overall homeownership rate of 64.6%

Americans are still facing some challenges with respect to homeownership. Affordability and rising rents are issues likely to be addressed by leading presidential candidates. In the meantime, Millennials now make up the largest cohort of homebuyers in the nation, encouraging news considering things like student loan debt and low inventory levels in certain markets. No doubt buyers, sellers, and businesses will keep a close eye on political developments over the next year.