As competition for the upcoming elections starts to intensify, people engaged in real estate are asking this question: Does the election have any effect in our business? Certainly, it does, especially if the race is close. Studies show that the campaign period makes selling homes more difficult.
A paper was published last year in the British Journal of Political Science written by economist Brandice Canes-Wrone of Princeton University and her co-author Jee-Kwang Park, assistant professor at Nazarbayev University in Astana, Kazakhsta where data from Zillow.com were used to check on housing sales in 73 U.S. gubernatorial elections in 35 states from 1999 to 2006. The results of the study showed that during election years, there was a decline in home sales between two-tenths and three-tenths of a percent.
While the percentage indicated may appear small, the authors noted that its impact may be compared to "that of other, well-established influences on housing markets" , standard deviation decrease in per capita income growth, for instance.
Dr. Canes-Wrone attributes this to uncertainty, wherein house hunters are more reluctant to buy since they are not sure of how an upcoming election will affect their finances.
The economist also observes from their study that election effect was more profound in elections where competition was really high. In those races where the winner got less than 55 % of the vote, home sales "fell between a third and a half of a percentage point."
"The closeness of the election matters a great deal. There is this average electoral effect, but really it's being driven by these tight elections, "Dr. Canes-Wrone said.
The real estate site Movoto discovered as well the same effect through a separate analysis in 2012 using data from the California Realtors Association to see, this time, the effect of presidential elections. Its analysis revealed that home prices went up by 6 % before the election years, 4.5 % during election years and 5.3% after an election.
Although Drs. Canes-Wrone and Park discovered a slight price decrease in some election years, Dr. Canes-Wrone considers those findings less solid as it was difficult to determine if the decrease was due to an increase in supply or to demand-side effects.
During the 2008 election, the researchers conducted a survey and found that the election was really "weighing on the minds of the would-be buyers."
"We found a link between the extent to which an individual believed the election would affect them personally and the likelihood of them delaying a house purchase until after the election," said Dr. Canes-Wrone.