Election years always bring a degree of chaos, and the impact on the real estate market is no exception. As we approach Election Day, the effect on housing and mortgage rates is becoming evident. This phenomenon stems from three main factors: uncertainty, policy expectations, and consumer confidence.
Uncertainty about election outcomes can cause buyers and sellers to either delay or rush decisions. Policy expectations related to housing regulations, taxes, and subsidies also influence market behavior. Lastly, consumer confidence impacts the market, as people may postpone major purchases until they feel more secure about the country’s direction.
Both candidates are focused on housing. Initially, Trump and Biden proposed policies that could significantly affect the real estate market. Kamala Harris, now the official Democratic Party candidate, recently announced a proposed $25,000 subsidy for first-time homebuyers and a commitment to creating three million new homes.
According to a recent article in The Real Deal, Harris posted her vision on X: “Every American deserves affordable housing — yet the cost is too high in communities across our nation. That is why our Administration just took another step to lower costs by announcing actions to limit rent increases and build more affordable homes.”
Democrats generally support measures like rent caps and increased housing construction, which have met resistance from landlord groups.
Trump, who is familiar with the industry, aims to extend policies from his 2017 tax law, which expires in 2025, and provide additional tax incentives to promote homeownership. Trump wants to increase the standard deduction while the SALT (State and Local Tax) deduction. Currently, SALT allows taxpayers who itemize to deduct up to $10,000 of property, sales, or income taxes already paid to state and local governments; initially, the SALT deduction was unlimited. In theory, the deduction exists to offset some federal taxpayer liability by excluding income already taken in taxes for state and local government services. The $10,000 SALT cap hit high-cost, high-tax blue states such as New York and New Jersey the hardest — a key concern for those in New York City.
Historically, President Biden planned to reverse parts of this law and increase corporate taxes. Should she win the election, Harris is expected to follow suit.
Referencing the same article by TRD, “Biden wanted to restrict the 1031 tax exchange program, which allows investors to defer taxes by rolling their capital gains on recent property sales into new properties. Most recently, Biden pitched limiting the deferral of such gains to $500,000 for each taxpayer.” While we cannot predict if Harris would mimic Biden’s exact policies, it is safe to say she will err on the side of his policies as opposed to Trump’s.
Conversely, Trump’s agenda includes lowering mortgage rates by reducing inflation, though this is primarily controlled by the Federal Reserve, which sets target interest rates for the financial system. Additionally, Trump seeks to limit foreign investment in U.S. real estate, especially from China, and promote luxury developments.
An article by Bankrate indicates that housing prices rise in election years at a higher rate than non-election years. However, it’s nuanced. Even though election years may feel more volatile, Lisa Sturtevant, chief economist at Bright MLS, a large listing service, says, “Historically the housing market doesn’t tend to look very different in presidential election year compared to other years.” She goes on to say that it comes down to demographics and the economy.
In particular, unemployment and interest rates are more important than what is happening on the national political scene.
Given that average mortgage rates are more than double what they were in 2020 and 2021, and home prices remain sky-high, housing activity remains stagnant, with existing home sales at their lowest since 2020.
Conversely, purchases arising from a ‘fear of missing out’ can drive up prices and heighten expectations of strong house-price gains.
Whether the Democrats or the Republicans win, the outcome is likely to impact the real estate market because there’s going to be a backlash to whoever is in power.
Ultimately, the election outcome may influence real estate, with reactions varying depending on which party wins. While election years bring volatility, the turbulence is temporary. Renters, buyers, and sellers may wait for the election results before making significant moves, knowing that prices and rates could fluctuate during this period.
It’s always worth remembering that past performance should not be taken as a guide to future performance. The value of investments and the income from them can go down as well as up, and you may not get back what you put in. You should continue to hold cash for your short-term needs.
Let’s face it, a drop in mortgage rates — with the possibility of a continued reduction in the Fed’s interest rates — will be the driving force for many who are priced out by the current numbers. Is that going to be enough to create an uptick? It’s still to be seen, but the ability for people to seize an opportunity becomes much more palpable, and in the end, real estate may become one of the most effective vehicles for diversification in a volatile climate.
