Will the outcome of the 2016 election impact the housing market’s performance in 2017? That’s the question Trulia attempted to answer, by surveying Democrats and Republicans two weeks before the presidential election and one week after the election.
Depending on their party affiliation, feelings about the future of the housing market swayed wildly. As you might expect given the election outcome, Republicans became more optimistic following the election, while Democrats became more pessimistic. The margin of change was significant, with roughly one-quarter of respondents changing their responses after the election.
Still, taking a step back from these results shows the changing sentiment is pretty much a wash for real estate professionals. True, some people (Democrats) are pessimistic about the housing market, but some (Republicans) are now more optimistic. How the mix impacts local housing markets depends on the political makeup of each particular community.
Here in California, Chapman University’s consumer sentiment index also decreased following the election. Where an index figure of 100 means an equal number of positive and negative responses, Californian’s view of future economic conditions fell from 110.8 in August 2016 to 97.0 in November 2016. Planned spending on big-ticket items (like cars and homes) also decreased, from 121.3 in August to 109.6 in November.
Sentiment about the housing market extends beyond 2017, as well. Trulia also asked whether homeownership was part of respondents’ broader American Dream. In 2015, 75% of all respondents said “yes.” This dropped slightly to 72% in 2016, averaging the same before and after the election.
But for Millennials — aged 18-34 — their response changed dramatically following the election, from:
- 80% saying “yes” in 2015 (continuing four consecutive years of increase); to
- 76% saying “yes” in 2016 two weeks before the 2016 election; to
- 72% saying “yes” in the week after the election.
However, this drop is likely related to the decreased housing sentiment among Democrats following the election. 57% of millennial voters lean Democrat, compared to 36% who lean Republican, according to Pew Research Center.
This changing attitude toward homeownership might be troubling for agents and brokers looking for the next wave of first-time homebuyers, who are typically members of this generation. When this generation becomes disenchanted with homeownership, it spells trouble for long-term home sales. But will Millennials continue to turn away from homeownership? Or will their attitudes shift again in the next political season?
How sentiment really impacts housing
One thing to keep in mind about the overall decrease in housing sentiment is that residents’ feelings about housing are unreliable measures of actual performance of the future housing market. That’s because sentiment is based on past events as experienced by the survey respondents. As more facts and figures become available, survey respondents change their opinion, and their future actions will likewise shift.
So, agents attempting to forecast future home sales — don’t read too much into this data.
That being said, there are a few obstacles homebuyers and sellers face going into 2017, including:
- rising mortgage interest rates, which have caused a drop in buyer purchasing power, or a reduction in the amount of mortgage principal available to homebuyers;
- slowing home sales volume, which began even before interest rates started to rise in November, partly in response to high home prices which exceed the limits of homebuyer incomes; and
- a lack of residential construction to needed to fill the demand from first-time homebuyers who are finding it difficult to find suitably priced entry-level homes to buy.
By extending these trends forward, you can expect a slower year for home sales volume in 2017, as well as a slow down in prices. Home prices continue to be higher than a year earlier in late-2016, but their month-to-month movement has slowed and even begun to decline in some mid- and high-tier housing markets.