By the Numbers: Manhattan Real Estate Transactions During an Election Year.

Buyer behavior is typically categorized somewhere between hesitant and paralyzed during an election year.  

Not knowing who will ultimately lead the country and formulate its policies for at least the next four years is enough to stop some buyers in their tracks. Several buyers that we’re working with have put their searches are hesitant to make a decision or put their searches on pause until they see how things shake out, so we do as a team have anecdotal evidence to support that theory/phenomena. 

The election year lull is a widely held perception within the real estate industry, but we wanted to expand the conversation beyond random feedback and acceptable assumptions. In a vacuum, it’s an easy concept to measure. All you’d have to do is look at the total number of transactions during election years and compare the totals to transactions during non-election years. So, we did that. 

Using data compiled by Miller Samuel in previously published Elliman Reports, we looked at transaction data to see how the Manhattan real estate market fared before and after each of the last two presidential elections. We’ve organized the data to show the total number of transactions per quarter from the year before an election, the year of an election, and the year after an election. 

The 2016 Election

2017 Total Transactions

Q1 – 2892 

Q2 – 3153

Q3 – 3369

Q4 – 2514

The 2012 Election

2013 Total Transactions

Q1 – 2457 

Q2 – 3144

Q3 – 3837

Q4 – 3297

When you examine the most recent two elections, you can’t make a great case for a phenomenon called the “election year lull.” The contrast in transaction numbers isn’t stark enough to support that premise. 

Total transactions for each quarter beginning with Q4 2015 all the way through the 2016 election year and into Q1 2017 were remarkably consistent, ranging from a low of 2736 to a high of 2974.  

When looking at the 2012 election cycle, there was a sharp drop in transactions in the final quarter of 2011 (Remarkably the number of recorded transactions for Q4 2011 is 2011.) But that low total came on the heels of a very busy 3^rd quarter (3106), and the numbers gradually normalized in the first three quarters of 2012, so that single low month seems more like an anomaly. Again, no lull.

The numbers don’t paint a picture of a paralyzed market with buyers sitting on the sidelines waiting for the polls to come in. The buyers were still out there, and the transactions were still taking place. That said, maybe the real estate industry isn’t barking up the wrong tree; Maybe it’s focused on the wrong branch in the right tree.

When you look at the data for both election cycles side-by-side (2012 and 2016), what seems more supportable is a pattern of higher transaction totals during the 2^nd and 3^rd quarter in the year after a presidential election. Transaction totals exceeded 3,000 in every one of those quarters, topping out at 3,837 in Q3 2013. That uptick even stretched into the 4^th quarter in 2013.

Transactions that are completed in Q2 and Q3 are typically representative of deals that were struck in Q1 of that same year, so it seems appropriate to suggest that demand from buyers was higher than typical immediately following the last two inaugurations. A surge in transactions like the ones we saw in the later halves of 2013 and 2017 is often attributed to pent-up demand, caused by the race for the presidency. But should we categorize it that way if there were no real signs of a slow-down leading up to those elections?

“We work with financially savvy clients, and generally speaking, market uncertainty spooks them,” Jeff Adler said. “So, we were surprised to see that that transaction totals held steady during each of the last election years before this one.”

The election seemingly does have an impact on the market, but not exactly the way it’s typically described. Still, we want to be careful not to suggest our inference has been proven. Analyzing just two election cycles, leaves us with an extremely small sample size. Maybe there isn’t always a spike in transactions right after a presidential election.

We went back further to the 2008 election, rooting for more evidence that would support our hypothesis. Would there be a Q2/Q3 transaction surge in 2009?

Earlier in this space, we implied that it was easy to measure lulls and surges in a market and to make assumptions about cause and effect, as long as the market was being measured in a vacuum. In other words, there are so many outside forces that can impact a real estate market, and it’s nearly impossible to assign a precise percentage of blame to each of those outside forces. 

If we used the same data points that we used from the 2012 and 2016 election cycles to study the ’08 cycle, any analysis can probably be taken with a grain of salt. The circumstances then were light years away from anything resembling a vacuum. All of the financial markets nearly crumbled in late September 2008, which had a lingering effect on the housing market. Transaction totals in early 2009 were only half of what was typical. In Q1 there were only 1195 closings and Q2 saw just 1532. 

Here’s what the overview of Miller Samuel’s 2009 Q1 report for Manhattan sales said:

“Last fall’s rapid change in market conditions established a new housing market that reflected a lower level of activity and a reset of housing prices. The tipping point which occurred last September was largely triggered by the bankruptcy of Lehman Brothers and federal bailouts of AIG, Fannie Mae and Freddie Mac. This marked a sharp contraction of credit, greatly restricting demand as participants had more difficulty obtaining financing. A National recession, rising unemployment and reduced compensation in the financial services sector also played a role in restricting demand.”

The state of the economy had a more acute impact on the real estate market than the changing of the guard at the White House, so we don’t put too much stock into the transaction totals for 2009, but seeing total transactions jump back up to 2230 in Q3 and 2473 in Q4 is at least noteworthy.

The 2008 Election

2013 Total Transactions

Q1 – 2457 

Q2 – 3144

Q3 – 3837

Q4 – 3297

Conclusion:

Election day is exactly 3 weeks away. With unimaginable outside forces taking turns sucker punching the Manhattan real estate market, our current set of circumstances certainly cannot be described as a vacuum. 2020 officially qualifies as even crazier than 2008. 

So, what’s going to happen?

After each of the last three elections, there was a surge in transactions in Q2 and Q3 the following year. And we just demonstrated that the surge was not caused by pent-up demand from the election. If recent history is an indicator, Q2 and Q3 in 2021 will see transactions spike. But might we see record numbers?

There is an election coming up. Soon, the clarity that buyers are looking for will come into focus. And this time, there is pent-up demand. The market was effectively shut down for the two quarters leading up to the election. In Q2 2020 there were only 1357 transactions in Manhattan, and just 1375 in Q3. We haven’t seen a market suppressed like that in any of the last three election cycles. 

If things break right, and a safe and effective COVID vaccine is introduced at any point in Q1 2021, it could open the floodgates as actual pent-up demand combined with the typical bump we see after an election year Q3 and Q4 2021 could be extremely busy.