We hear it all the time: The real estate market in the metro area really picks up after national elections, especially in presidential election years. But is that really true?
Here are the basics. There are 3,000 president-appointed jobs and 24,000 jobs on Capitol Hill. On the surface, the possibility of a change in 27,000 jobs should have an enormous impact on the real estate market, but let’s break it down.
Look at the White House. If there is a change in the Oval Office, let’s assume that every one of those 3,000 appointed jobs changes and that there are a considerable numbers of lower-level staff positions that change along with them.
Being generous, that could be as many 8,000 jobs—but let’s also talk about the reality of Washington. Lots of the people who will fill those jobs already live here—call it the "Potomac Revolving Door." Folks currently “out” in the private sector revolve “in” and those who are currently “in” revolve to think tanks and other jobs.
That phenomenon—so reviled by folk elsewhere in this country—is part of what keeps our economy strong. People who come here tend to stay here, particularly if it was politics that brought them here in the first place. (I’m a good example. I came here to work for a presidential campaign in 1976. My guy lost—and I never left.)
But, let’s be generous and say that fully half of all of those jobs get filled by folks who move here from parts beyond. So, we’re looking at 4,000 out-of-towners getting new jobs—and let’s finally assume that half of those people buy homes in their first year in the area. Based on our experience, these are very generous assumptions. That would be about 2,000 home purchases in the event of a change in the occupant of the Oval Office.
On Capitol Hill, 8,600 of those 24,000 jobs are “non-partisan” and don’t typically change when new members arrive in town, so there are roughly 15,400 jobs subject to change—if every member of Congress was replaced.
And, despite Congress’ low approval rating, the reality of our system is that typical turnover runs about 5 to 7 percent. The electoral tsunami of 2010 saw a 13 percent change in new members, so let’s use that historically aberrational level of change for our calculations.
A 13 percent turnover of the 15,400 “partisan” jobs is 2,000 people, and let’s further assume that half of the new hires come here from out of town. Staff pay on Capitol Hill is such that only about half could afford to buy a home in this area, so let’s further assume that every single one of 1,000 out-of-towners who can afford to buy does, and that they buy right away. So, that could mean 500 home sales if we see another major electoral shift in Congress.
So, if there is a change in the White House and another historically major change in Congress, we could see as many as 2,500 homes changes hands in 2013 because of the elections. And, that’s being very generous—based on our experience, we think that number will be considerably less. In a “typical” year there are roughly 45,000 home sales in Washington, DC, and the contiguous counties in Virginia and Maryland. Two thousand, five hundred purchasers would increase demand by about 5.5 percent. To be sure, that’s a positive impact, but it’s more of a “blip” than a “boom.”
Remember that there are other significant factors here. Individuals do not make a decision to purchase a home in a vacuum. Just moving to the area to take a new job—even a new job on Capitol Hill or in the Executive Branch—does not cause an individual to ignore overall market conditions. There are market-related reasons that potential purchasers today are cautious.
Also remember that while there may be new occupants of these jobs, these are not “new” jobs like we see created when a company moves here. This is simply turnover, so there’s no other major impact on the economy.
What actually has happened in the past? On the heels of the major changes in the makeup of Congress in 2010, the number of sales in the immediate DC area rose less than 1 percent. The election of 2008 brought a change in the White House and a change of 29 seats in Congress. There was an increase of almost 20 percent in the number of sales in 2009 compared to 2008—so on the surface one might be tempted to say these elections had a major impact on the region’s real estate market.
However, in February of 2009 Congress passed and the new president signed into law the first round of the Homebuyer’s Tax Credit, and the number of sales jumped nationally, too. In 2006, there was a change of 35 seats in Congress—and sales activity declined 23 percent in 2007. The accompanying table, going back to the election of 2000, shows that one would be hard-pressed to find a correlation between changes on Capitol Hill and the White House and home sales.
From our perspective, the post-election “boom” is a myth, and one should not base one’s housing decisions on the supposed impact of the election. As we have always maintained, sell when it is the right time for you to sell, and buy when it is the right time for you to buy. Market timing is a pretty risky endeavor—particularly if one’s timing is based on politics.
Written by David Howell, EVP & CIO.
For more real estate information, please visit our website.