It's Still the Economy, Stupid
James Carville is credited with coining the phrase "It's the economy, stupid" as Lead Strategist of Bill Clinton's successful 1992 Presidential run. Did Carville's sentiment also apply to the 2016 election? Democrats and Republicans would likely agree that it did, but that the key issue was economic perception, not reality. Microeconomics trumped macroeconomics (pun intended).
If you are out-of-work, underemployed, or stuck in a dead-end, lower-paying job with no significant raises or realistic chance of advancement — or feel that you are — you may not care that the Obama administration provided 73 consecutive months of economic growth as defined by jobs created. You are more likely to be persuaded by the argument that America has gone 10 straight years with less than 3% growth in GDP. That's the longest such period since the Bureau of Economic Analysis began calculating GDP change 85 years ago.
You are willing to trade in slow and steady progress for the roller coaster of potentially higher rewards and risk that comes with greater unknowns. If so, you probably voted for Donald Trump to shake up the status quo.
Zillow Analyzes Red Vs. Blue
In an interesting twist, Presidential votes also split along economic lines when viewed through the prism of the housing market.
Zillow Senior Economist Aaron Terrazas analyzed the county-by-county results in the 2016 Presidential election and compared them to median housing prices in those areas since 2000. While the overall trend is upward in both cases, the difference in the graphs of "red" counties that voted for Trump in 2016 vs. "blue" counties that voted for Hillary Clinton is impressive.
The graphs follow the same basic shape, with median home values rising to a peak in late 2006-early 2007, bottoming out in mid-2012, and rebounding steadily to date. However, the size of both the peaks and troughs are much larger for the blue counties than the red ones.
From the January 2000 baseline to the 2007 peak, homeowners in Trump counties experienced just under a 52% increase in home values, followed by a 17.5% drop between 2007 and the 2012 trough, and a 22% rise since then to reach a peak value of $153,800.
Meanwhile, homeowners in Clinton counties saw a dramatic rise of over 90% from the January 2000 baseline to the peak, followed by a 29% drop and a 34.2% recovery. Median home values have not yet reached the previous peak of $262,500.
In essence, Clinton counties had a bigger hole to dig out of, but are doing so at a higher rate of growth because of basic economics. Clinton counties are generally more urban and thus more sensitive to supply and demand.
What's It All Mean?
It's more likely that from the housing perspective, Zillow's conclusion reflects a symptom than a cause. The Economist calls the election results by county indicative of "a cleavage between inward-looking country folk and urban globalists." There are exceptions, but the electoral map supports that basic premise. The former are more likely Trump voters; the latter are more likely Clinton voters.
By definition, highly urban areas are more likely to have supply and demand issues — too many people within too little space. That's especially true in markets with geographical limitations and restrictive building codes (such as San Francisco and New York City). As prices naturally rise from lack of supply to meet demand, affordable housing becomes an even greater challenge.
Zillow found that mortgage affordability as defined by Adjustable Gross Income (AGI) in Trump counties tracks that of Clinton counties but remains significantly better throughout the years. Currently, mortgages in Clinton counties consume a median of 14.6% of income compared to 11.6% for Trump counties. However, in 2013, the amount of median negative equity (where the amount owed on a home is greater than the worth of the home) hit an inflection point where Trump counties have a greater median negative equity than Clinton counties.
In short, urban Clinton counties were hit harder by the housing crisis but have recovered faster and seemingly bypassed Trump counties. Seeing glowing reports from urban areas, but less improvement in their own lives (a powerful argument in the Rust Belt and other areas formerly dominated by manufacturing), a sizable number of voters in blue counties switched to Trump.
Trump and Housing
Now that Trump has prevailed, how will he placate these voters unsatisfied with their local economy? It will certainly be a tough challenge, but Trump has shrewdly aimed his economic growth message toward increased jobs (with implication toward higher quality jobs and higher wages) and building up America's manufacturing base. In two years, Trump will get an idea of how well he has satisfied this crowd during the mid-term elections.
However, Trump's message to the overall housing market is mixed. His preference for lower regulation and a mostly receptive Republican Congress means that banks are more likely to be able to loosen their lending practices and make more mortgage products available to critical first-time homebuyers. Meanwhile, his stimulus program is likely to keep interest rates rising and may accelerate the slow pace of rate increases. As long as wages rise to keep pace, that's a reasonable scenario for homebuyers — but even though more mortgage products may become available to first-timers, they may not be able to afford them without the type of risky loans that caused the housing crisis in the first place.
On the supply side, Trump's immigration policy stands a reasonable risk of squeezing the labor market in housing construction, delaying new starts and aggravating an already limited supply of homes. Areas should be disproportionately affected where the housing supply is shorter and the construction labor supply is currently stable but dependent on skilled immigrant labor. Clinton counties in populated coastal areas may be strongly affected.
Essentially, if you are in position to buy a home now, it makes sense to move forward while interest rates are relatively low. You may get a better deal if Trump's policies are successful, but there is too much uncertainty involved to make any solid predictions.
Generally speaking, if you live in a blue Clinton county, keep in mind that your areas are more sensitive to changes in overall housing policy, interest rates, and items that broadly affect affordability and basic supply and demand. You may have to act more quickly if you see disturbing trends in your area. In contrast, Trump counties are more likely to be affected by the wage and job outlook.
However, we repeat: microeconomics trumps macroeconomics. Whether you live in a blue, red, or purple area of the country, the supply and demand of your local market and the interest rates available should have more to do with your actions than the national trends, and your personal financial situation is the most important factor of all. Refinance or buy now if you can — but if not, prepare a financial plan to get there before 'you are priced out of the market. If you are interested in refinancing your home loan, visit the MoneyTips Mortgage Planner.
Map created by Magog the Ogre via Wikimedia, Figures 1 and 4 ©Zillow