Sep 236 min read

#13 Politics in Real Estate: How Stock Market Reactions to Elections Impact Homebuyers and sellers

Updated: Sep 25

Elections have a significant influence on the stock market, which often experiences volatility around major political events. This volatility affects not only investors but also potential home buyers and home sellers, especially those who rely on stock portfolios for down payments, wealth, and purchasing power. As political uncertainty rises, the stock market fluctuates, and those fluctuations can ripple through the housing market. This blog post explores how election results and market reactions can impact prospective homebuyers across the U.S.

1. Stock Market Reactions During Election Seasons

The stock market tends to react strongly to elections due to uncertainty about future policies, regulations, and government spending. Historically, markets become more volatile in the months leading up to and immediately following an election, as investors adjust their expectations based on potential changes in economic policies, corporate taxes, and government spending.

Pre-Election Volatility: Investors often take a cautious approach leading up to an election, holding off on large decisions until there’s clarity about the political outcome. This results in short-term volatility.
Post-Election Relief or Turbulence: Depending on the election outcome, the market may either surge in relief or react negatively if the new policies are seen as harmful to growth sectors.

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2. Impact on Homebuyers

Many potential homebuyers rely on stock portfolios as part of their overall wealth, whether it’s from 401(k) savings, investment portfolios, or company stock options. Stock market volatility, particularly around elections, can affect their purchasing power and ability to afford a home.

Portfolio Value Fluctuations: A decline in stock market value can reduce a buyer’s down payment savings, forcing them to reconsider their home purchase. For example, a buyer relying on a portfolio valued at $100,000 for a down payment might lose a significant portion during a market downturn.
Consumer Confidence: Stock market downturns can also lower consumer confidence, causing potential buyers to delay purchases. In 2008, the financial crisis—which included a severe stock market crash—resulted in a massive drop in home sales as buyers pulled back due to economic uncertainty.
Mortgage Rates: Stock market reactions can influence interest rates. During periods of uncertainty, investors flock to bonds as a safer alternative to stocks, driving down bond yields. Lower bond yields can lead to lower mortgage rates, making homes more affordable for buyers.

3. How Political Parties Impact the Stock Market and Housing

The stock market often reacts differently depending on which party is expected to win an election and the policies they support.

Republican Influence on the Stock Market

Tax Cuts and Deregulation: Republicans typically favor tax cuts and deregulation, which the stock market generally views favorably. For example, following the election of Donald Trump in 2016, markets surged, anticipating corporate tax cuts and business-friendly policies. The 2017 Tax Cuts and Jobs Act significantly reduced corporate tax rates, boosting company profits and stock prices.
Volatility in Specific Sectors: Certain sectors like healthcare and technology tend to perform well under Republican administrations due to policies that favor corporate growth and reduced government intervention.

Democratic Influence on the Stock Market

Government Spending and Stimulus: Democrats tend to favor government spending on infrastructure, healthcare, and social programs, which can positively affect industries like construction, clean energy, and healthcare. After the 2020 election, the stock market responded favorably to President Biden's proposed $1.9 trillion stimulus plan aimed at boosting the post-pandemic economy.
Higher Corporate Taxes: On the flip side, Democrats are often associated with higher corporate taxes and tighter regulations, which can lead to negative stock market reactions, particularly in sectors like energy and financials. For example, Obama’s 2008 victory led to some initial market turbulence due to expectations of increased regulation.

4. City Examples of Market Reactions and Housing Impact

New York City

Stock Market-Heavy Economy: As the financial capital of the U.S., New York City’s housing market is closely tied to Wall Street. After the 2008 financial crisis, the city saw a sharp decline in home prices as many prospective buyers, whose wealth was tied to the stock market, were impacted by the crash. However, following the 2016 election and Trump’s pro-business policies, NYC saw luxury real estate prices surge due to increased investor confidence.

San Francisco, California

Tech Market Dependency: San Francisco's housing market is deeply connected to the tech sector, which often experiences volatility around elections. During the 2020 election, many tech workers saw significant growth in their portfolios as the market favored technology stocks, driving up demand for homes in the Bay Area despite the ongoing pandemic.
Dot-com Bust: In contrast, during the 2000 election and subsequent dot-com bubble burst, many tech workers in San Francisco saw their wealth vanish, leading to a sharp drop in home demand and prices.

Miami, Florida

Post-Election Surge: Florida’s low taxes and strong real estate market attracted investors after the 2020 election. Miami's real estate market benefitted from the post-election stock market boom, as investors and retirees flocked to the city, pushing up housing prices.

Austin, Texas

Tech Boom: Austin has become a tech hub, and the local housing market is closely tied to the performance of tech stocks. After the 2020 election, the city saw a surge in home prices as tech companies thrived during the pandemic and workers relocated to cities with lower costs of living.

Phoenix, Arizona

Rapid Growth: Phoenix has experienced rapid growth in home prices post-election, partly driven by stock market gains that increased wealth for out-of-state buyers, many of whom cashed out their portfolios to purchase homes in the city.

Chicago, Illinois

Market Volatility and Real Estate: Chicago’s housing market, like many major cities, experiences swings based on stock market reactions. Following market drops, such as during the 2016 election, real estate activity tends to slow as potential buyers delay purchases.

Stock Market Reactions and Housing in the 2024 Election

Stock market volatility around elections has a significant impact on homebuyers, especially those relying on stock portfolios for wealth and purchasing power. Both Republicans and Democrats influence the market differently, with Republicans generally boosting investor confidence through tax cuts and deregulation, while Democrats focus on government spending and stimulus. How the stock market reacts to the next election will shape not only the financial world but also the housing market, influencing everything from down payments to mortgage rates.

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Disclaimer:

This article is for informational purposes only and does not constitute financial or real estate advice. Stock market performance and housing market trends can vary based on individual circumstances. Consult with a financial advisor or real estate professional to understand how stock market volatility may affect your specific situation.