With an election looming, the impact on investment values, including housing, during each party’s administration is a hotly contested issue. Both Republicans and Democrats often cite their party’s success in driving the economy forward while blaming their counterparts for recessions. As long as there has been an American Dream, politicians have touted their credentials to help Americans realize that dream. The phrase can be traced back to Thomas Jefferson’s “life, liberty and the pursuit of happiness” found in the Declaration of Independence. However, this adage was lifted from John Locke’s “life, liberty and estate.” While Jefferson’s version is more encompassing and arguably more eloquent, one of the founding principles of the United States has been the ability to own property during a time when many of the original colonists did not have that opportunity in Europe’s aristocracies.
So the question is, “does one party provide property owners a clear advantage over the other?” At first glance, it appears that Republican administrations hold a minor advantage over Democrats dating back to 1953. Home prices have increased an average of 4.5 percent during years where a Republican occupied 1600 Pennsylvania, compared to a 3.8 percent rise during Democratic presidencies. However, it is important to remember that real estate is a slow moving investment vehicle, and decisions made years in advance impact pricing.
By examining the 1970s bull housing market, which was driven by high inflation, one can see that the ball really started rolling during the Johnson administration. By encouraging both the Vietnam War and Great Society agenda, Richard Nixon inherited a recession. The Republican president had his own ideas, and encouraged the Federal Reserve to keep interest rates low, while running high deficits. As a result of an increasing in the money supply, inflation drifted into the double digits and home prices soared. The U.S. housing market under both Nixon and Democrat Jimmy Carter benefited in the analysis from the mishandling of monetary and economic policy by Johnson and Nixon.
Political Party Impact on Home Prices
The next major bull housing market, which has been closely analyzed, occurred during President George W. Bush’s time in office. However, Bill Clinton’s repeal of Glass-Steagall legislation enacted during the Great Depression was a piece of the deregulation movement that fueled the housing boom and bust. Furthermore, the Fed’s decision to drop interest rates following 9/11 brought cheap, lightly regulated loans to homebuyers. The result was a housing bubble. Bush repeatedly took credit for record-high homeownership rates during his State of the Union addresses, though he likely gave himself too much credit for the bull market. At the same time, while blame is often cast on his administration for the bust, many factors contributed to the financial crisis, including the merger of the investment and retail banks.
President Obama has presided over a new bull housing market, which has recouped all of the losses from the housing downturn that resulted in the Great Recession. Although the president is happy to accept credit for the upturn in prices, the Fed’s unprecedented accommodative monetary policy and low supply growth have combined to drive prices higher. The next president, regardless of party, could face a very different story. The Fed is expected to resume tightening interest rates by the end of this year and could accelerate interest rate hikes to normalize policy. Rising rates will put downward pressure on prices in many heated coastal markets. Furthermore, barring the longest stretch of economic expansion in the post-war era, the winner of the 2016 presidential election will likely be facing a recession during the second half of their administration.
With unfavorability ratings above 50 percent for both candidates, this election has many voters feeling like they’re in a no-win situation. In fact, a recession in a few years, downward pressure on home prices in some areas, and rising borrowing costs could make the party that loses this election the real winner. They may be able to nominate a more desirable candidate to run against an aging president grappling with an economic downturn.