Presidential election years in the United States are historically periods of heightened speculation affecting the real estate and stock markets. The anticipation of possible shifts in leadership can prompt changes in fiscal, monetary, and regulatory policies, affecting the behavior of consumers and investors.
Stock Market
According to a study by LPL Financial, the S&P 500 has seen an average increase of 7% during U.S. presidential election years since 1952. Although a 7% rise is far from devastating, it falls significantly below the 17% average increase observed in the year before an election year. This performance is also lower than the S&P 500's average annual total return of approximately 10% in a typical year.
For 2024, there's an added twist that promises encouraging news: since 1952, the S&P 500 has not experienced a downturn in any presidential re-election year—the year a sitting president runs for re-election. It typically boasts an average annual increase of 12.2% during such years. This is likely because most sitting presidents are re-elected.
Real Estate Market
Meyers Research, a consultancy specializing in housing, conducted a study covering the last 13 presidential election years dating back to the 1980s. This study revealed that during these years, there is a 15% decrease in the median sales activity of new homes from October to November, coinciding with the period of presidential elections. However, in the year after an election, the usual seasonal downturn in sales of newly constructed homes is more moderate, with a decline of just 8%. Similarly, in their article “Elections, Uncertainty and Irreversible Investment,” Professors Brandice Canes-Wrone and Jee-Kwang Park suggest that the real estate housing market routinely experiences a pre-election decline. The theory is that potential homebuyers and sellers may adopt a 'wait and see' approach, leading to a temporary slowdown in housing market activity.
The impact of presidential elections on residential real estate tends to be more pronounced in the higher tiers of the market. Lawrence Yun, Chief Economist for the National Association of Realtors says, “Upper-income people will probably wait until after the election compared to more middle-class, everyday people just because any changes to a new tax law or new regulations could have a bigger impact for them.” This also applies to foreign investors, who tend to delay buying property in the U.S. due to potential changes in tax and residency regulations that could come with a new administration.
Not to worry as the December after an election, and into the following year, sales rebound and compensate for those lost leading up to the election. The presumption is that buyers quickly return to rational thinking once an election has passed. It appears that political clarity translates into economic stability.