Unlike the stock market, housing has actually lost steam
A surprise election victory last November brought about uncertainty across some sectors of the economy, including housing, but some parts of the economy – such as the stock market – have seen a sharp rise in performance. However, this “Trump Bump,” as some call it, is missing from the housing market. We find that a majority of U.S. counties’ housing markets have not experienced a “Trump Bump” during Trump’s first year in office. While some housing market indicators – such as building permits – are doing well, others – such as home values, rents, and the value of construction – are softening considerably.
Last year, we found that some households – primarily those who identify as Democrats – soured on the prospects of 2017 being a better year for the housing market than 2016. At the same time, others – primarily Republican households – felt a renewed sense of optimism about the future of housing. We attributed much of this shift in optimism to the surprise victory by President Trump. Now that we’re nearly a year removed from the election, we wanted to look back at the performance of the American housing market to determine whether this swing in optimism has affected the performance of several housing market indicators during Trump’s first year.
To do so we looked at the following to gauge housing market health under Trump’s first year in office compared Obama’s final four: (1) number of building permits per existing 1,000 households, (2) the valuation of those permits, (3) house price appreciation, (4) rent appreciation, and (5) percentage point change in the residential vacancy rate. We analyzed the measures individually, and also aggregated them to create a housing market index. It’s important to note that softening performance isn’t necessary bad for all, especially when it comes to prices and rents. See the methodology section below for more details.
Disclosure: We recognize that despite being the commander in chief, U.S. presidents have very few policies at their disposal to affect the hundreds of housing markets across the country. Aside from our nation’s capital, housing market conditions in most markets are more closely tied to economic conditions at their state and metropolitan level than federal policies. And even if U.S. Presidents did pull policy levers that directly affected the housing market, the lag period would be long enough to make it difficult to determine if changes in housing market conditions were attributable to the current administration’s policies or previous ones. As such, we present the analysis below not as an evaluation of President Trump’s administration, but rather a gauge of whether the abrupt change in optimism expressed by some households immediately after last year’s election manifested themselves into housing market conditions this year.
After digging into these data, we found that:
- The “Trump Bump” is missing from the housing market. When looking at our aggregate housing market index (described below), just 1,021 counties have improved over the past year, while 1,299 are doing at least slightly worse.
- Blue counties (carried by Hillary Clinton in last year’s election) are doing better than red counties (carried by Trump) when it comes to new construction, but permit valuation, home values and rents are softening. The number of building permits in blue counties has seen a 19.6% increase in Trump’s first year compared to Obama’s final four. However, the value of permits, home values, and rents in blue counties is 4%, 1.4 points, and 2.5 points lower, respectively, so far under Trump.
- Red counties are also not immune to housing market softening. While building permits are also on the rise in red counties, permit valuation, home values, and rents are also softening considerably under Trump by 3.3%, 0.2 points, and 2.6 points, respectively.
County housing markets are on pace to perform slightly worse under Trump’s first year than Obama’s final four, indicating that the “Trump Bump” did not extend to the housing market. Looking at our housing market index, just 1,021 counties are doing at least slightly better under Trump than Obama, while 1,299 are doing at least slightly worse. However, some individual housing market indicators are doing well, while others are floundering.
For example, more U.S. counties saw higher levels of building permits under Trump than Obama. A full 1,924 out of 3,087 counties – or 62% – are on pace to have a better 2017 than their 2013-2016 annual average (note that our sample size for counties varies by indicator and is due to data availability). Despite the approval of more permits under Trump, the value of those county residential building permits has been lower for most counties in 2017. Just 1,014 out of 3,087 counties – or 33% – are on pace to have a higher total permit valuation in 2017 when compared to their 2013-2016 annual average.
When it comes to prices, rents and vacancy rates, the story doesn’t change much.. Home values in 1,191 out of 2,316 counties – or a slight majority of 51% – have seen greater annual home value gains under Trump than Obama. On the other hand, rent appreciation was greater under Obama. Rents in just 772 out of 2,940 counties – or a meager 26% – have seen greater appreciation over the past year, compared to Obama’s last four years. When it comes to our fifth and final indicator, change in vacancy rates, it’s been a coin flip: 1,631 out of 3,138 counties – or 52% – have seen greater decreases in the vacancy rate under Trump than Obama.
It appears that, with the exception of building permits, Democrats were more right about feeling pessimistic about 2017 than Republicans were right about being optimistic. First, let’s look at the bright spots: building permits are performing nearly equally as well in blue counties and red. For example, blue counties have seen an increase in building permits from 5.5 to 6.6 permits per 1,000 households – an increase of 19.6%. Red counties have fared nearly as well at 18.2%, increasing from 4.8 to 5.7 permits per 1,000 households. When it comes to the valuation of those permits, however, blue counties saw a decrease in average valuation from $73.6 million to about $70.6 million – a drop of 4%. Similarly, red counties saw a decrease of 3.3%, moving from $40.2 million under Obama to $38.9 million under Trump.
Across our other three housing market indicators, red vs. blue housing market performance under Trump has been mixed. Red counties and blue counties alike have seen a decrease in home value gains, but the decrease was larger for blue counties (8.2% to 6.9%) than it was for red counties (8.1% to 7.9%). Rent growth has declined similarly in both red and blue counties, by 2.6 and 2.5 points, respectively. But while the decrease was nearly the same, red counties are actually seeing year-over-year declines in rents by 0.5%. Last, the change in vacancy rates in red and blue counties between the Obama and Trump administrations was small and not statistically significant, at 0.02 and -0.02 points for blue and red counties, respectively.
Is the Housing Market Doomed Under Trump?
Our answer is a resounding no. This is because of two important factors. First, the economic cycle was already quite mature when President Trump took office, so the prospects of any housing market indicator to be greater in Trump’s first year than Obama’s average over his final four years was low because most of our housing market indicators rebounded shortly after the housing market hit bottom in 2012. Second, softening housing market indicators under Trump aren’t necessarily bad for everyone trying to engage in the market, as we note our methodology below. For example, moderating rents and prices, while not so great for property owners, actually benefit renters who might be trying to save up for a down payment. So despair not: signs that housing is cooling under Trump is likely more of a reflection of where the housing market is relative to the economic cycle. Furthermore, new housing construction – which is the one bright spot in our report – is sorely needed to help relieve the inventory shortages we’ve noted over the past few years.
|Blue vs. Red County Housing Market Performance|
|Building Permits/1,000 Households||Annualized Average Sum Under Obama||Annualized Average Sum Under Trump||% Change|
|Building Permit Valuation ($1,000s)||Annualized Average Sum Under Obama||Annualized Average Sum Under Trump||% Change|
|Home Value Change||Annualized Average Change Under Obama||Annualized Average Change Under Trump||Point Difference|
|Rent Change||Annualized Average Change Under Obama||Annualized Average Change Under Trump||Point Difference|
|Vacancy Rate Change||Annualized Average Point Change Under Obama||Annualized Average Point Change Under Trump||Point Difference|
|NOTE: Percentage and percentage point change may not add up to the stated differences due to rounding.|
To compare county housing market performance under Obama’s final four years to Trump’s first, we examined five housing market indicators to create a housing market performance index that ranges from a score of five (where a county has performed better on all five indicators under Trump first year than Obama’s final four) to negative five (where a county has performed better on all five indicators under Obama). Our five housing market indicators include: (1) number of building permits per existing 1,000 households, (2) the valuation of those permits, (3) house price appreciation, (4) rent appreciation, and (5) change in the residential vacancy rate. For housing market performance, we had to make a tough decision about whether to classify higher prices and rents under the Trump administration as being inherently good or bad. While rising prices and rents certainly hurt renters, especially those looking to get into a home, we interpret price and rent gains over the past 5 years as indicators of housing market recovery from the recession. After calculating our indicators at the county level, we then assigned each one point for each indicator if it performed better under Trump and a negative one point if it performed better under Obama. We then summed the points: a score of five, three, or one indicates the housing market performed much better, better, or slightly better under Trump, while a value of negative five, three, or one indicates the housing market performed better under Obama.
We measure each of housing market indicators as follows:
- Building Permits: for both the Obama and Trump years, the annualized average of building permits approved per 10,000 existing households in 2010. We sourced these data from Moody’s analytics;
- Building Permit Valuation: for both the Obama and Trump years, the annualized average of building permit valuation (in thousands of dollars). We sourced these data from Moody’s analytics;
- Home value growth: for the Obama years, we calculated the annualized change in county median home value between January 2013 and January 2017 using Trulia’s internal home value estimates. For Trump’s first year, we calculated an annualized average in year-over-year home value change for each month of Trump’s presidency (January 2017 to October 2017), also using Trulia’s monthly home value estimates;
- Rent growth: for the Obama years, we calculated the annualized change in county median rents between January 2013 and January 2017 using Trulia’s internal rent estimates. For Trump’s first year, we calculated an annualized average in year-over-year rent change for each month of Trump’s presidency (January 2017 to October 2017), also using Trulia’s monthly rent estimates;
- Vacancy rate change: the percentage point change in the United States Postal Service’s Deliver Statistics for residential properties between July 2010 and July 2016;
Last, we generate our estimates of housing indicator performance along political lines by taking the weighted average of each of our indicators at the national level, using the share of a county’s 2016 presidential election votes for Hillary Clinton as the weights to generate Democratic county averages and the share of votes for President Trump as the weights to generate Republican county averages.