The housing market is currently in a state of limbo, with many potential homebuyers holding back their bids until after the upcoming presidential election. Despite a recent dip in mortgage rates, which has made monthly housing payments more affordable than a year ago, pending home sales have dropped by 7.8% annually – the sharpest decline in nearly a year.
This hesitation among buyers can be attributed to the uncertainty surrounding the election and its potential impact on housing policies. Redfin agent David Palmer from Seattle notes, “I’m seeing people postponing until after the presidential election; buyers tend to be more careful about major financial decisions around a consequential election.” This caution is not entirely unfounded. A study published in early 2023 by the Journal of Real Estate Research found a correlation between housing price increases and voter behavior. Homeowners in counties experiencing rapid price growth in the years leading up to an election were more likely to support the incumbent party. This suggests that the health of the residential real estate market can influence national elections.
Alan Tidwell, co-author of the study and associate professor of finance at the University of Alabama, explains, “Voters consider their financial circumstances when making decisions at the ballot box. Typically, economic prosperity benefits the incumbent, while economic downturns increase support for the opposition party.”
While mortgage rates have reached their lowest point in over a year, home prices remain stubbornly high. The median U.S. home sale price stands at $388,085, representing a 3.7% increase year-over-year and just shy of July’s all-time high. This price resilience is partly attributed to limited inventory, with the total number of homes for sale down nearly 30% from pre-pandemic levels.
The upcoming election has also sharpened the focus on housing policy. Vice President Kamala Harris has pledged to address the housing shortage by constructing 3 million new homes over four years and implementing tax breaks for homebuilders targeting first-time buyers. Former President Donald Trump, while offering fewer specifics, has suggested that reducing illegal immigration would decrease housing demand and free up properties for Americans.
These policy proposals are timely, as housing affordability is a growing concern. A May analysis by Zillow revealed that rent prices had increased 1.5 times faster than wages in most major U.S. metropolitan areas over the previous four years.
While some potential buyers are waiting for political clarity, others are hoping for further drops in mortgage rates. “One of my buyers is under contract on a home, but he’s trying to hold off on closing until the end of the month in hopes that rates will come down and he can get more bang for his buck,” says Palmer. Despite the current hesitation, there are signs of underlying demand. Redfin’s Homebuyer Demand Index, which measures tours and other buying services, has been near its highest level since May, and mortgage-purchase applications have risen by 2% weekly.
As the election approaches, many potential homebuyers appear to be in a ‘wait and see’ mode, potentially swayed by political winds. The housing market is holding its breath, waiting to see what the election brings.
