Regardless of which party you wanted to win, it could always be worse if you got beaten in an election by a dead guy… in NV a Brothel owner who was deceased still won against his competitor for a state seat!(ABC news)  What does the midterm election mean for real estate and banking?  Will the economic trajectory be altered?  How will this impact banking regulation?  How will real estate values be impacted?  What do you need to know from the recent political shift?

What happened?

The Republicans maintained control of the senate (and increased their majority) while the Democrats picked up the house. This creates a “split chamber” and sets up conflict between the various branches of government.

How does this impact banking regulation?

I don’t think the recent election changes much.  Without control of both the house and senate it will be hard for one party to have a huge impact on banking regulation. There are several other higher political aspirations for the Democrats including healthcare and immigration.  Banking should not be materially impacted in the short term.

Does the recent election impact the economic trajectory?

It is doubtful.  Regardless of the political party, we are at the tail end of an economic cycle.   Volatility has picked up substantially in the stock market.  Furthermore, the fed will continue raising rates which will constrict the economy.   The general trajectory will not be impacted one way or the other regardless of the last election.  Economic conditions are set years in advance and change once a “trigger” occurs, this could be a micro or macroeconomic event.  In our current cycle it looks like the main trigger for the economy is the federal reserve raising rates quicker than the market anticipates.

What does this mean for real estate?

The election will not impact real estate directly, but the current economic trajectory will have huge impacts on real estate.  Currently we are towards the end/at the end (depending on who you ask) of an economic cycle and as a result two big events are converging that will impact real estate prices.

Volatility: Before the election, stocks and bonds have already been making large movements each day. The election likely will exacerbate the current market volatility in stocks and bonds as any change in the political climate brings nervousness to the market.  This is common near the end of an economic cycle as everyone is concerned about where the peak is / transition begins.   Large volatility leads to changes in consumer and business confidence which translates into long term purchases.   Many business indicators are already showing a slowdown in business confidence; I suspect consumer confidence will follow downward due to the market volatility.  As consumers and business get nervous, they will delay large purchases/leases of property.

Rates: Currently the rapid increases in the 10 year treasury due to the federal reserve’s statements has caused the 30-year mortgage to top 5%; this has drastically slowed down sales in many higher end price points as payments subsequently increased.  The uptick in rates has made many properties unaffordable for many buyers as their income has not increased fast enough to absorb the spike in payments.  The Federal reserve is intent on continuing a path of steady rate increases which will further increase mortgage rates and crimp affordability.

Rates and Volatility will alter the trajectory of the Real Estate Market:

The convergence of higher rates and increased volatility will slow the residential and commercial market.  We are already seeing this in more expensive markets like Denver that was down 44% in sales over 500k in September.  Prices have not adjusted down yet, but that is the next logical step as volatility and rates continue to increase.  The economy is poised to begin another economic cycle regardless of which party controls which chamber or if a dead guy won an election.

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Written by Glen Weinberg, COO/ VP Fairview Commercial Lending.  Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in the Colorado Real Estate Journal, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.

Fairview is a hard money lender specializing in private money loans / non-bank real estate loans in Georgia, Colorado, Illinois, and Florida. They are recognized in the industry as the leader in hard money lending with no upfront fees or any other games. Learn more about Hard Money Lending through our free Hard Money Guide.  To get started on a loan all they need is their simple one page application (no upfront fees or other games).