What happens to housing values and sales volumes following an election?

In last week’s blog I looked at what happens to the housing market in the 12 months leading up to a federal election, this week I take a look at what happens in the 12 months after a federal election.  Once again, we have looked at movement in capital city home values and national house and unit sales over the 12 months following an election.

The housing market is seasonal so the time of year of the election is likely to play some part in the results however, the 12 months’ worth of data does show the trend in the lead-up to an election.  As you will see later, the position in the market phase and changes to monetary policy may also have a significant impact on the market performance.

The five most recent federal elections have been: 3 October 1998 (Coalition win), 10 November 2001 (Coalition win), 9 October 2004 (Coalition win), 24 November 2007 (Labor win) and 21 August 2010 (hung parliament but Labor take power).

Looking specifically at the change in home values over the 12 months following a federal election you can see that in 1998, 2001 and 2004 home values rose however, following the most recent two elections home values have fallen.  Over the 12 months to July 2013, capital city home values have risen by 4.9% so the market currently has momentum going into the election but can it be maintained for the 12 months following the election?

home values small

The strongest annual increase in home values following an election was 2001, with values increasing by 16.4% followed by the 1998 election where values rose by 10.7% over the following year.  Over the 12 months following the 2001 election, interest rates increased by 50 basis points whereas following the 1998 election they fell by 25 basis points.  It is also important to remember that between 2001 and 2004 there was a national boom in Australian home values.

In 2004, capital city home values rose by just 1.8% over the following year.  This was the tail-end of the national housing boom and over this time, interest rates rose by 25 basis points.  Following the 2007 election, home values fell by 1.2% over the next year and home values fell by 3.0% over the 12 months following the 2010 election.  Following the 2007 election, the financial crisis hit, economic growth slowed and interest rates were cut by 150 basis points from 6.75% to 5.25%.  Following the 2010 election in August, interest rates were lifted by 25 basis points over the next year as values fell.

If we look at the change over the year in national home sales, the results are reasonably similar, with volumes falling following three of the past five elections.  The most up-to-date sales information indicates that sales to May 2013 were 19.0% higher and with interest rates moving lower more recently; sales appear likely to pick-up further over the year in the lead-up to the September election, but once again will the momentum carry through the next 12 months?

home sales small

The number of home sales was higher in the year following the federal election in 1998 (13.9%) and 2004 (1.7%).  In 2001, sales volumes fell by 4.6% in the year following the election, in 2007 they fell by 27.0% and in 2010 they fell by 5.7% over the year.  It makes sense given broader economic conditions, that volumes and values fell following the past two elections however, it is a little surprising to see that in the midst of a large real estate market boom in 2001 and 2002 although values rose 16.4% over the 12 months post-election sales activity actually fell.

Over the past five elections, home values and sales increased in 1998 when the Coalition held office for their second term and in 2004 when they took office for their fourth term.  When Labor took office in 2007, values fell by 1.2% over the next year and volumes fell by 27% of course, they also had the financial crisis to deal with at that time.  In 2010 following a hung parliament, values fell 3.0% over the next 12 months and sales volumes declined 5.7%.

How much the trends outlined above can be attributed to an election is debateable however, federal elections and the subsequent following budgets no doubt have an impact on consumer and business confidence.  It does seem from the past five elections that when there is no change of leadership that the housing market tends to respond better post-election than when there is a change in leadership or hung parliament, notwithstanding the impact of the financial crisis following the 2007 election.

Following the upcoming election it will be interesting to see the housing market’s response.  Housing affordability, low levels of growth in housing credit and high levels of household saving are no doubt likely to be barriers to a breakout in value growth and a surge in sales volumes.  Not to mention the forecast that the national unemployment rate will reach 6.25% by mid next year which would be its highest level since September 2002. Despite all these constraints, home values have increased by 4.9% over the past 12 months on the back of the lowest mortgage rates in more than 50 years and rising levels of consumer, but not business confidence.

If Labor holds office do we see a continuation of rising home values and increasing sales?  If the Coalition takes office do we see even better conditions in the housing market or do we see deterioration in market conditions?  We simply don’t really know but it will be interesting to see in the wash-up of the election what impact it does have on the housing market.

About Cameron Kusher

Cameron Kusher is Head of Research at CoreLogic, specialising in primary and secondary data analysis, property market commentary and consultancy. Cameron has a thorough understanding of the fundamentals such as demographics, trends, economics and spacial analysis and is a regular keynote speaker for property-related groups, regulated industry bodies, corporations and the government sectors. Follow Cameron on Twitter @cmkusher

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5 Responses to What happens to housing values and sales volumes following an election?

  1. Matthew Bell August 16, 2013 at 3:21 pm #

    Hi Cameron,

    So, if I’m reading your article right, in summary, elections have no systematic effect on either prices or volumes, correct?

    When you say, “however, federal elections and the subsequent following budgets no doubt have an impact on consumer and business confidence”, I’m assuming you’ve done the similar analysis using consumer and business confidence, comparing election and non-election years, or have seen it elsewhere? Are you able to post (or link to) this?

    • Cameron Kusher August 16, 2013 at 3:52 pm #

      Hi Matthew

      My conclusion is that you can’t categorically state that elections have an impact on home values and sales volumes. Broader economic conditions and factors such as interest rates would appear to have more of an impact.

      If you have a look at the consumer sentiment data which is already volatile on a month-to-month basis, you can see that in a number of instances an election or budget has triggered a change in direction for sentiment. For example following the 2001 election, sentiment continued to trend higher however, the Budget the following year triggered a fall in sentiment. Similarly in 2004, the election triggered a deterioration in consumer sentiment however, after the budget the following year sentiment started to trend higher for a few months. I don’t think you can accurately judge what happened after the 2007 election due to the financial crisis. If you look at 2010 which was a hung parliament (pretty rare in Australia) we saw an ongoing deterioration in sentiment thereafter.

  2. Buyers Advocate Melbourne August 23, 2013 at 12:54 pm #

    Interesting article. Do you see this as a result of buyer uncertainty in the lead up to an election, and whether good or bad, buyers have some level of certainty after an election or, do you think it is more to do with the macro economic factors such as interest rates and the general state of the economy, regardless of who is in power.

  3. Sveta September 6, 2013 at 1:41 am #

    Since we have the highest property prices in the world according to some Business Review sources… are we

    likely to suffer from US property crisis – collapse and defaulting etc in the future?

    What prognosis does RP Data have on this if any from statistical perspectives ??

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