Election uncertainty causing some buyers to hit pause
Many homebuyers are waiting to see who the next president will be before continuing their home search, but it’s really the Fed that they should be watching.
Key points:
- A survey from Veterans United Home Loans found that nearly 40% of respondents said they plan to pause their home search until the election is over.
- Veterans are somewhat more optimistic about their finances and the economy than civilians.
- The outcome of the election will likely have less influence on the housing market than the actions of the Fed, which is expected to cut rates in September.
The lead-up to major elections can spell uncertainty, which sometimes translates into negative effects on the economy and housing market. During this presidential election cycle, major issues among voters include housing affordability, inflation and jobs.
But what about buyers who've sat on the sidelines, waiting for their moment to jump back into the housing market? Should they continue to wait, or go ahead and buy now?
More than a third of buyers putting off their home search
According to a new survey conducted by Veterans United Home Loans and consulting partner Sparketing, the majority of respondents said the upcoming presidential election is influencing their decision — and timing — to buy a home. And roughly 38% of the 930 respondents — which includes a mix of veteran service members and civilians — indicated that they planned to wait until after the election to continue their home search.
The top issues on the minds of respondents were inflation, housing affordability, the job market, taxes and national security.
"Throughout most of the last year and a half, veterans have been more optimistic about finances, about their ability to secure a home loan and about the national economy than civilians have," Chris Birk, Veterans United director of education, told Real Estate News.
"There's an expectation about rates following a long tail drop, but I think the reality continues to settle in for a lot of veterans and civilians that home prices aren't going to be the same, most likely."
Keep an eye on the Fed, not the president
The person in the Oval Office has limited control over what the market will do in the short term, Birk added, noting that the two primary barriers to homeownership — borrowing rates and home prices — have been consistently elevated in recent quarters.
But there is one person and entity that could have a bigger effect on how the housing market changes in the immediate future: Jerome Powell and the Federal Reserve. And it's expected that Powell will remain in his role if Trump is reelected.
The Fed did not issue any rate cuts this week, but it signaled that a rate cut in September "could be on the table." Despite continued progress in taming inflation, the committee voted to keep the federal funds rate at around 5.5%, noting in a news release that it will not cut rates until it has greater confidence that inflation is continuing to move closer to the 2% target rate.
An end to the mortgage rate lock-in effect?
A Fed rate cut would be a good thing for the real estate market, says Jason Haber, a Compass agent in New York as well as co-founder of the upstart American Real Estate Association.
"It's not just good for buyers…, it's also good for sellers, because there are sellers who are locked into rates, and they aren't selling right now because they don't want to lose their low rate," he told Real Estate News — a reference to the mortgage rate lock-in effect, which has had a major impact on inventory and home prices in some markets — as well as buyer sentiment.
"When we talk about inventory being too low in certain parts of the country, one way to unlock inventory is for sellers to have more confidence in the market," he elaborated.
"So as rates go down — hopefully you start to see them get into the fives — you're going to see sellers becoming unlocked and there will be more inventory, which will be good for buyers and help create more of a virtuous cycle in the market."