Ellie Perlman, CEO of Blue Lake Capital Int’l LLC | Growing & Preserving Wealth With Multifamily Investments | Podcast Host: REady2Scale.
As another presidential election approaches, the usual concerns about its impact on the real estate market come up again. While the nation debates the future of democracy and the fairness of the Electoral College, there’s an intriguing question investors should consider: Is everything we believe about elections hurting (or boosting) property prices backed by data? Let’s dive into the numbers and perspectives that could change how we think about buying or selling investment properties during an election year.
The general belief I’ve heard is that U.S. presidential elections significantly impact the real estate market, driven by pre-election uncertainty and the candidates’ proposed policies. During election years, market activity may slow as buyers and sellers adopt a wait-and-see approach. Candidates’ platforms on tax policies, interest rates, regulations and economic growth can shape market expectations. Promises of tax cuts or purchase incentives may boost demand, while proposals seen as harmful to economic stability can dampen enthusiasm.
Do Elections Really Impact Real Estate?
What is interesting to note, however, is that presidential elections may not significantly impact the commercial real estate market. Data from NMHC indicates that for the period from 1996–2003, the average annual return on all REITs was just slightly more in non-election years compared to election years. For instance, the average annual return on all REITs for the period during non-election years was 11.6%, while the average annual return on all REITs for election years during the same period was 11.2%.
Further, according to Ginger Chambless, Head of Research for Commercial Banking at JPMorgan Chase, “History tells us markets can get volatile around elections, but it’s usually temporary and related to the uncertainty. After the results, the direction of markets is more likely to be driven by the economic outlook and prevailing investor sentiment, rather than the election outcome itself.”
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This suggests to me that other factors, such as supply and demand dynamics and interest rates, likely have a more substantial impact on the real estate market than the electoral process. Economic conditions, global trends and market fundamentals play a critical role in influencing property prices. Factors like property supply, mortgage rates and overall economic health are some of the primary drivers of market trends. It is also pertinent to note that outlier events may overshadow any potential effects of presidential elections. For example, the severe drop in home values in 2008 was due to factors like the housing bubble bursting. In 2004, the annual return was 34.7% and 31.6% for apartment REITs and all REITs, respectively. In 2008, the annual return was -25.1% and -37.7% for apartment REITs and all REITs, respectively, indicating a similar decline in commercial real estate.
Key Policy Changes To Watch
Some policy changes to watch for, however, depending on who wins the White House, may include:
Foreign Ownership Of U.S. Real Estate
A proposal in the U.S. seeks to tighten restrictions on foreign ownership of real estate, a trend that could continue regardless of the 2024 election outcome. These changes may expand the Committee on Foreign Investment in the United States’ (CFIUS) jurisdiction over foreign investment, potentially impacting foreign investments in various sectors. It is crucial for foreign investors to stay informed about legislative changes that might affect their U.S. property investments.
1031 Exchange Rules
The expiration of the 2017 tax cuts established under Donald Trump challenges the new administration and Congress to decide if these cuts will be extended. And 1031 exchanges, which allow investors to defer capital gains taxes by reinvesting in similar properties, are under scrutiny. While a new administration might preserve these rules, the Biden administration’s budget proposal for 2025 proposed limiting the amount of taxes that could be deferred. Repealing or limiting 1031 exchanges could lead sellers to prefer debt-financed “cashout” transactions over property sales, creating opportunities for credit investors. While I personally believe that 1031 exchanges might not be removed completely, real estate investors should stay informed nonetheless.
Focus On Fundamentals
For many people, the outcome of a presidential election may have little or no direct impact on their personal finances or decisions to buy or sell a home. Unless one’s employment is closely tied to federal policy changes, election results don’t necessarily need to heavily influence real estate decisions. Instead, investors deciding whether to buy or sell a property may want to focus on broader economic indicators and personal financial circumstances. While elections can dominate headlines and stir public debate, their actual influence on the real estate market is likely to be minimal compared to the more powerful forces of economic supply and demand, interest rates and overall market conditions.
Considerations For Investors
When contemplating investing in real estate, investors should carefully evaluate broader market trends and economic indicators rather than getting swayed by the political climate alone. Factors to consider include:
• How are interest rates trending, and what is the Federal Reserve’s stance on monetary policy?
• Are there any significant changes in property supply, such as new construction projects or shifts in demand due to population movements?
• Additionally, investors should assess overall economic health—look at employment rates, consumer confidence and GDP growth, as these may all impact real estate values.
• Specific indicators like the performance of REITs or trends in rental prices can also provide insights into market direction.
Staying informed on these factors will help investors determine whether it’s an ideal time to buy, sell or hold real estate assets.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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