An election year is often fraught with uncertainty, and real estate markets across the nation are no exception. Historically, these years bring a slowdown in market activity, as buyers, sellers, and investors alike take a “wait-and-see” approach, concerned about how potential shifts in policies might affect the economy and their financial decisions. In Phoenix, however, the real estate landscape has its own set of dynamics, which means that while uncertainty looms, opportunities still exist for those who are well-informed.
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Phoenix’s housing market is distinct due to a combination of factors that set it apart from many other U.S. cities. Its rapid population growth, driven by an influx of residents from other states, has fueled strong demand for housing. The city’s relatively affordable cost of living, coupled with a booming job market in sectors like tech, healthcare, and finance, has made it a magnet for both homebuyers and investors. Additionally, Phoenix’s diverse economy and consistent population growth have helped the market remain resilient, even during periods of national economic uncertainty. These factors make Phoenix a dynamic and competitive real estate market, with both short-term volatility and long-term growth potential.
Historical Trends and Uncertainty
Historically, real estate markets experience a dip in activity during election years. According to a study by Meyers Research, home sales during presidential election years typically drop by an average of 15% in November compared to non-election years. This trend stems from the uncertainty surrounding economic policies, tax regulations, interest rates, and market stability. Many buyers and sellers become hesitant, waiting for clarity on potential changes that could impact their financial decisions.
I’ve seen these patterns in play. Election years tend to make people pause, with some opting to delay major financial decisions like buying or selling a home until after the election outcome is clear. The uncertainty surrounding tax policies, interest rates, and potential regulatory changes can cause individuals to be more cautious. For buyers, this often means holding off on making offers, while sellers may hesitate to list their properties.
Impact on Interest Rates
One of the key concerns during election years is how interest rates will move. The latest Federal Reserve rate change in September 2024 involved a significant half-point cut, marking a strategic shift to address emerging concerns in the job market. This was a larger cut than usual, reflecting the Fed’s growing caution about weakening labor conditions despite overall economic strength. The decision signals confidence in inflation control, with officials projecting that inflation will reach the target of 2% by the end of 2025. Additionally, the Fed expects to implement further rate reductions through the end of 2024 and into 2025.
This rate cut is expected to have a ripple effect, especially in sectors like housing. Mortgage rates could decrease, offering some relief to homebuyers as borrowing costs decline. Lower interest rates may also encourage increased economic activity, which could support the housing market and consumer spending.
However, the broader impact depends on how these cuts interact with other economic factors, including unemployment trends and overall financial stability. For example, even in light of the Fed dropping the Fed Funds rate, the subsequent job report sent mortgage interest rates skyrocketing at a record breaking rate. While the Fed rate cuts are designed to improve the prospects for a “soft landing” — reducing inflation without pushing the economy into recession — uncertainty remains around future growth and other economic indicators can be troubling to mortgage interest rates specifically (i.e. the most recent job report).
For the Phoenix real estate market, where affordability is already a concern for many buyers, any fluctuation in rates almost always either motivates or dissuades potential home buyers and seller.
Let’s consider how an interest rate change can impact a down payment and subsequent mortgage:
For a $300,000 mortgage over 30 years:
- At a 4% interest rate, the monthly principal and interest payment would be around $1,432.
- If the rate rises to 5%, that payment increases to about $1,610—a difference of $178 more per month.
- Conversely, if the rate drops to 3%, the payment would be about $1,265—a savings of $167 per month.
As a general rule of thumb, for every 1% change in interest rates, the monthly mortgage payment on a typical 30-year loan changes by roughly 10% to 12%.
I advise buyers to keep a close watch on interest rate change trends, not just daily rates, which can fluctuate substantially. If rates are expected to rise, locking in a mortgage sooner could be a smart financial move. However, those who are waiting for post-election market conditions to stabilize need to be prepared for rates to go up or down as it is anyone’s guess at this point what will happen.
Investor Caution and Opportunities
Investors tend to approach election years with caution. The uncertainty surrounding potential changes in government policies—such as shifts in tax law or changes to investment regulations—leads many investors to be more conservative in their purchasing decisions. In Phoenix, this caution could result in fewer investment transactions as investors take stock of potential risks.
However, I believe this uncertainty can also create opportunities. Savvy investors who can navigate this uncertainty might find favorable conditions, especially if others in the market hold back. Phoenix, with its consistent population growth and strong local economy, may still offer attractive long-term investments even amidst election-year volatility.
Local Market Resilience
Despite national trends pointing toward caution, the Phoenix real estate market has shown resilience during previous periods of uncertainty. Phoenix has a number of strong fundamentals that set it apart, including a diverse economy and a growing population, which have historically helped to buffer the local market from broader national trends.
In my many years of experience, I’ve seen Phoenix’s real estate market often outperform expectations, even during challenging times. This is largely due to the city’s steady population influx, driven by its strong job market, quality of life, and comparatively affordable cost of living. These factors could mitigate some of the slowdown expected during an election year.
Advice for Buyers and Sellers
For those looking to buy or sell in Phoenix, navigating an election-year market requires a strategic approach. I suggest buyers who are ready should consider acting sooner rather than later, especially if interest rates are poised to rise. In a potentially slower market, buyers may also find they have more room to negotiate, as sellers may be more eager to close deals before any further uncertainty sets in.
For sellers, I suggest being realistic about pricing and marketing strategies. Since some buyers may be on the sidelines, sellers need to ensure that their property stands out. Pricing homes competitively, putting your home’s best foot forward with some sprucing, and hiring a professional agent who invests in quality marketing efforts can make a big difference in moving a property quickly, even in a slower market.
Once the election outcome is determined, both buyers and sellers can expect a clearer picture of what lies ahead for the real estate market. Depending on the policies of the incoming administration, the market could see renewed activity as buyers and sellers regain confidence and move forward with their transactions.
Conclusion
While election years bring about a degree of uncertainty, the Phoenix real estate market has a history of resilience. For buyers, sellers, and investors alike, staying informed and strategic can help mitigate some of the risks and capitalize on potential opportunities. By understanding the unique dynamics of the Phoenix market and remaining adaptable to changing conditions, individuals can make well-informed decisions even in the face of political uncertainty.
Author: Trevor H. Halpern, J.D. is CEO of Halpern Residential at eXp. As a Phoenix native, Halpern’s deep knowledge of both people and property has allowed him to create client success in all areas of town. A graduate of ASU’s College of Law, Halpern prides himself on delivering high-level strategy, efficient negotiations and precise tactical execution. Since 2011, Halpern has sold over $300 million in real estate and is in the top 1% of real estate agents in the Greater Phoenix area.
