The year 2020 will be remembered as one of the most challenging times of our lives. A worldwide pandemic, a recession causing historic unemployment, and a level of social unrest perhaps never seen before have all changed the way we live. Only the real estate market seems to be unaffected, as new forecast projects there may be more homes purchased this year than last year.
US economy is the biggest in the world and one of the most open. As such, what happens in the US will have a large ripple effect on other economies. As they used to say, when the US sneezes, the rest of the world catches a cold!
With time winding down to the 2020 presidential election in November 2020, the typical hyperdrive of American politics is in full swing. The U.S. Presidential candidates (Trump & Biden) are poles apart on economic policy, climate diplomacy and green investment, Big Tech, healthcare, foreign policy, racial justice, immigration, trade, and China – all of which could have a cascading impact on financial markets. There are some very practical effects that elections tend to have on real estate. Historically, presidential elections have slowed down home sales as buyers and sellers react to uncertainty over the course of the year.
Housing consultancy firm Meyers Research conducted a study of 13 presidential elections, finding that median new home sale activity declined 15% from October to November in election years, according to Forbes. The effect of an election is usually very temporary, sparking a rebound as quickly as December and January as pent-up demand hits the market again.
History suggests that the slowdown is largely concentrated in November. In fact, the year after a presidential election is the best of the four-year cycle. Interestingly, international equities also outperform under Democrats, though emerging-markets stocks have the edge under GOP presidents. As a rule of thumb, a Republican lead is supportive of stock prices as Republicans tend to favor policies that boost company earnings and shareholder profits. Alternatively, a Democrat lead would have the opposite impact on equity prices as Democrats would concentrate on redistribution of wealth, and social rights and benefits.
The stock market and the economy are key indicators of who wins a presidential election, according to Forbes, with ‘avoiding a recession’ in the two years leading up to an election a key indicator of re-election. In the past century, presidents who averted a recession during this two-year period have always been re-elected. But in the past, the stock market performance has been at least somewhat in line with the underlying economic situation. This is clearly not the case this year. Donald Trump has constantly demanded a loosening monetary policy of the Fed, and this policy has been the main reason behind record US equities.