Here we are again in an election year! Every two years the market gets a little wacky. As I reviewed my notes from the last 16 years I can see there is a trend. Every time an election year rolls around the real estate market gets super slow in the months leading up to the election.
My notes show the months of August, September and October are traditionally slow for sales. There’s a logical explanation for that. I understand that most people don’t want to make any big moves (none larger than a purchase of a home) just before an election. Most savvy buyers would prefer to put their hands in their pockets and do nothing until after they know who their elected officials will be. Some people feel as though they’ll be able to predict the course of their country’s economy shortly thereafter.
One example is the election of 2016. I’m in Denver and I’ve got three, $3 million plus homes for sale on the market. All three homes came on at the beginning of the summer and all three had a fair number of showings, but not even a sniff of an offer. Donald Trump wins the election the first week of November and within two weeks all three homes go under contract and close before the end of the year.
In 2020, Trump is up against Joe Biden and the months of August, September and October are painfully slow. Biden wins the election, and the market takes off in historic proportions. We see a run-on real estate from November 2020 until March 2022 like we’ve never seen before. And I could go on with numerous more examples.
No one knows for sure exactly what will happen come November 8th, but if the Republicans take back the House and the Senate, or even just the House, we will have divided government. One thing I do know for sure is that Wall Street loves divided government. If Wall Street thinks that nothing will get done over the next two years in Washington, then they are happy. You see, Wall Street loves predictability and gridlock in Washington means nothing is getting done, which equals predictability. So how does that translate to real estate? That means things start getting better right after the election.
For instance, I think inflation starts to get better after an election. Everybody watches the consumer price index (or CPI for short) closely to figure out where inflation is headed. And while the consumer price index has moved very little in the last few months, if you really drill down on some of the specific industries you can see that inflation has been starting to abate in certain sectors. Look at the used car market. You can see that in 2021 it appreciated by 58%. Today if you take a look, the used car market is down 10%, a sign that the inflationary pricing is starting to come down. Global shipping costs are also coming down, so the backlog of products is starting to break loose. Again, if you look at the economy sector by sector in real time you can see there is starting to be some breaks in inflation. Remember, the CPI is a lagging indicator, meaning the data you’re looking at today is looking backwards for the last few months. If you really want to know what’s happening with housing and you’re following the CPI you won’t have that data until January. However, real estate agents like me can tell you what’s happening in real time because we live it every day.
What about mortgage rates? Will there be good news there anytime soon? That’s hard to say and anyone’s guess. Traditional economics suggest that if inflation begins to be under control, then the bond market will act favorably, and interest rates will start to come down. However, the Fed has said they plan on doing another ¾ of a point interest rate hike on November 10. They’ve also said they plan on doing a half a point or ¾ of a point interest rate hike in December. I personally don’t think the December hike is necessary. I think by the time we get to December we should start to see inflation numbers coming down. The Fed should have been raising interest rates last year; now they’re late to the game. I’ve read articles featuring information from a bunch of economists who believe mortgage interest rates will come down considerably by this time next year. I have read other articles from another set of economists who believe mortgage interest rates are going to go to 12%. I don’t know which one is true and to be honest I don’t think anyone else does either.
If you asked me to rub my crystal ball today, I personally think the Republicans are going to win back control of the House and the Senate. That will create divided government and make Wall Street happy. I also think we’ll start seeing inflation numbers come down as early as December and certainly by the first quarter of the year. All these factors should force the bond market to create much more favorable mortgage interest rates. But as always, I reserve the right to be wrong. Besides it’s an election year, and the last two election years have been one hell of a wild ride – so expect the unexpected!
Dan Polimino is the owner of the Hawaii Team in Kailua-Kona, Hawai`i. He and his team are the luxury residential experts for the Big Island. If you are thinking about buying or selling in Hawai`i, then please reach out to us at team@thehawaiiteam.com or call 808-913-0899
