Greater Phoenix Real Estate Update 10/30/2020

Disclaimer: This update discusses the history of politics and housing based entirely on data and facts. At no point are personal political opinions inserted.

Over 68 million Americans have already voted and we will see that number significantly increase in the next few days as we approach what seems to be the most contentious election yet. I researched how Republican and Democratic administrations impact housing and the economy and was somewhat surprised by my findings; the president’s political party influences housing and the economy even less than I initially thought. And real estate’s relationship with the president and Congress is based almost entirely on policy created by both sides of the aisle.

Housing, the economy, and political leanings.

Wall Street:

Both housing and the stock market are influenced, not exclusively by the president but mostly by policy. The stock market does not like uncertainty. On average, it performs better in election years when the incumbent party wins, regardless of party. Since 1950, Wall Street investors have benefitted the most from a split Congress. This is because a split means less major policy change and Wall Street responds negatively to change.

On average, since 1950 Wall Street has had the greatest returns with a Democratic president and a Republican Congress at 18.3% per year, while a Republican president and Democratic Congress has been the weakest at 8.7% per year. (LPL Research, Bloomberg)

Ten of the past 11 recessions began with a Republican president, the one exception being President Carter in 1980.

In 20 of the last 23 elections, the incumbent party has been re-elected when the S&P 500 was positive in the three months before the election. On August 3, the S&P 500 closed at 3,295. Yesterday, it closed at 3,310. An almost unnoticeable 15 point difference.

The luxury and second home markets are impacted by the stock market more so than lower priced, occupied properties.

Example of Policy Impact on Wall Street – Maximum Corporate Tax Rates:

  • In 1986 Republican President Reagan dropped corporate tax rates from 46% to 28%.
  • In 1993 Democratic President Clinton increased corporate tax rates from 28% to 35%.
  • In 2018 Republican President Trump decreased corporate tax rates from 35% to 21%.
  • In 2020 Democratic Vice President Biden proposed a corporate tax rate increase to 28%.

US Corporate Tax Rates 1970-2020

US Corporate Tax Rates
US Corporate Tax Rates 1970-2020

Housing Policy:

In the 1990’s Democratic President Clinton started a big push to increase homeownership rates by instituting looser lending guidelines. Republican President Bush continued President Clinton’s strategy and homeownership rates peaked in 2005 at 69.1%. Homeownership rates then dropped to a bottom of 63% in 2016, the lowest rate since 1965; erasing all progress made by Presidents Clinton and Bush.

In 2009 the government sponsored a first-time home buyer’s credit which, briefly, pushed the market back into a seller’s market before dropping back down into an epic decline and buyer’s market.

In 2010 the Dodd Frank Act passed, despite being created for consumer spending protection this act has impacted how we close transactions.

Vice President Biden has proposed a new first time home buyer’s credit. This would increase buyer demand across the country like it did in 2009. Based on our current inventory levels this would push prices even higher and faster; increased demand on already low inventory drives prices up.

NAR’s Pending Home Sales Index:

Since 2001 the pending home sales index has followed along with the overall economy, regardless of who is in the White House. Not only that, in September, pending sales were up 20.5% year over year. (NAR)

“The demand for home buying remains super strong, even with a slight monthly pullback in September, and we’re still likely to end the year with more homes sold overall in 2020 than in 2019. With persistent low mortgage rates and some degree of a continuing jobs recovery, more contract signings are expected in the near future.”

Dr. Lawrence Yun, Chief Economist for NAR

According to a recent Redfin study, 16% of Americans said they would consider moving out of the country if their presidential candidate of choice is not elected, up from 9% during the 2016 election. That would help with our inventory struggles!

Mortgage Interest Rates:

Interest rates have been dropping consistently since the peak of 19% in 1981. Throughout the years there hasn’t been much more than a 2% increase before leveling out.

The Federal Reserve is the largest purchaser of mortgage-backed securities (MBS) in the world. The current rate at which the FED is buying the MBS is keeping rates at these historic lows. At some point, the FED will slow its purchases of MBS which will drive rates up. (MBA, Urban Institute)

Real Estate Campaign Donations:

Presidential campaign donations from the real estate industry favored Republican candidates in the 2004, 2008, and 2012 elections and favored Democratic candidates in the 2016 and 2020 elections.  (Center for Responsive Politics):

2020 Election (through 10/23)

Biden Campaign (D)            $34,059,973

Trump Campaign (R)           $22,710,600

2016 Election:

Clinton Campaign (D)         $15,552,405

Trump Campaign (R)           $11,162,279          

2012 Election:

Obama Campaign (D)         $5,781,496

Romney Campaign (R)       $15,470,102

2008 Election:

Obama Campaign (D)         $11,571,746

McCain Campaign (R)         $9,570,576

2004 Election:

Kerry Campaign (D)        Did not make the top 5 and was less than $5.1M

Bush Campaign (R)          $11,329,316

Rentals:

According to the Mortgage Bankers Association in September 8.5% or 2.82 million renters missed their payment. Many landlords that own single-family houses, duplexes, and/or triplexes will have equity and will be able to sell and make money on their investment, keeping them from defaulting on their commitments.

In Greater Phoenix, single-family rentals are now renting at higher rates than a mortgage payment for the same house, including taxes and insurance. (Tina Tamboer)

The apartment complexes will have more trouble. If there is a CARES Act 2 that provides assistance for landlords we may be ok but if not, there will be some fallout. The distress levels really depend on location, this will be a regional problem more than a national problem. San Francisco and New York City are already struggling with vacancies. Here in Greater Phoenix, places are full and a high percentage of renters are paying rent. My crystal ball is still blurry on what will happen next. Provided we do not shut down again or have mass hospitalizations everywhere in the country I would expect more of the same. If we have more of the same, delinquencies will continue to decrease and our economy will continue to recover.

Final Thoughts:

Regardless of who is sitting in the White House in January, residential real estate will, likely, continue to thrive and grow. Experts forecast 2021 to be another solid year with high demand. Real estate professionals should not be distracted by headlines or sensationalized news. Be part of the solution. If you haven’t already voted, VOTE! Early voting is still available, for more information and locations visit https://recorder.maricopa.gov/pollingplace/

Please share this with your colleagues and clients.

Copyright 2020 by Sarah Perkins

Published by Sarah Perkins

Sarah has been with Lawyers Title of Arizona since 2004. As an award-winning sales executive, Sarah's role is to bring transactions to Lawyers Title. To do this, she focuses on supporting her clients and helping them navigate the ever-changing real estate space through thorough research and understanding of current trends impacting today's home buyers and sellers.

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