3 Ways Biden Dropping Out Could Affect Housing Costs
In a surprising turn of events, President Joe Biden announced his withdrawal yesterday from the 2024 presidential race. He stated: “It is in the best interest of my party and the country for me to stand down and to focus solely on fulfilling my duties as President for the remainder of my term,” according to US News.
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After his announcement, Biden endorsed Vice President Kamala Harris for the Democratic Party nomination. However, despite Biden’s endorsement, Kamala Harris is not yet the definitive Democratic nominee. Here’s how this seismic announcement — paired with the unpredictability of the Democratic National Convention official nomination — could affect the housing market.
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The Housing Market During Election Years
Political and election uncertainty can have significant impacts on the economy, as businesses, investors, and consumers often adopt a cautious stance during periods of unpredictability.
It is commonly believed that the housing market suffers during election years. However, an analysis of the S&P CoreLogic Case-Shiller Home Price Index reveals that home price appreciation during election years has actually outpaced that of non-election years.
This means that while uncertainty can be stressful, it is not categorically bad for housing costs. Here are 3 ways Biden’s withdrawal could affect the housing market.
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1. Policy Shifts
Policy shifts introduced by a new candidate can significantly influence housing costs, as different approaches to housing policy can have varying impacts on the market. The specific policies and regulatory changes advocated by a new candidate can create a range of outcomes, either alleviating or exacerbating housing affordability issues depending on their approach.
For instance, a candidate who prioritizes affordable housing initiatives may propose increased funding for low-income housing projects, tax incentives for developers building affordable units, or expanded housing vouchers, which could help lower housing costs for many residents.
Conversely, a candidate focused on deregulation might push for relaxed zoning laws to encourage more housing development, potentially increasing supply and reducing prices over time. On the other hand, implementing strict rent control policies could stabilize or lower rents for existing tenants but might discourage new construction, potentially leading to a housing shortage — and higher prices in the long run.
2. Interest Rates
Political changes, like Biden’s withdrawal, can significantly impact the Federal Reserve’s decisions on interest rates, which in turn have a direct effect on mortgage rates and housing affordability. Changes in political leadership often come with new economic policies and priorities, influencing the Federal Reserve’s approach to managing inflation, employment, and economic growth.
For instance, a new administration might advocate for more aggressive fiscal stimulus, prompting the Fed to adjust interest rates to counteract potential inflationary pressures. Lower interest rates generally lead to reduced mortgage rates, making home loans more affordable and potentially boosting housing demand and prices. Conversely, higher interest rates can increase borrowing costs, dampening homebuyer enthusiasm and slowing price growth.
3. Tax Policies
Changes in tax policies related to real estate can significantly influence housing costs by altering the financial landscape for homeowners, buyers, and investors. For example, adjustments to property taxes can directly affect the annual costs of homeownership, potentially making it more or less affordable depending on whether taxes are increased or decreased.
Modifications to the mortgage interest deduction, a key tax benefit for many homeowners, can impact the attractiveness of buying a home. Reducing this deduction might lead to higher after-tax costs for homeowners, potentially cooling demand and affecting home prices.
Similarly, changes to capital gains taxes on the sale of real estate can influence investment decisions. Higher capital gains taxes might discourage property sales and reduce market liquidity, while lower taxes could encourage more transactions and investment in the housing market.
Editor’s note on election coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories. You can find more coverage of this topic on GOBankingRates.com.
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