Uncertainty and patience are among 2020’s main themes, and this year’s election season was no different. The 2020 presidential election saw the highest per capita voter turnout since the 1900s (adjusting for population) as Americans went to the polls to weigh in on the nation's future leaders. Then, Election Day morphed into election week as the world watched closely to see the results. While there are still some unknowns, our team spent time reviewing policy plans to see what they could mean for the housing market and wider economy.
Our analysis is based on projections from big news organizations like Fox News, CNN, and CBS and acknowledges that former Vice President Joe Biden is our president-elect. Control of the Senate is still in question until the two runoff races in Georgia on Jan. 5. Under this framework, here are five key areas we have considered:
1. Stock market. The first risk we wanted to overcome following the election was the reaction from investors in the stock market. Even before the positive Pfizer vaccine announcement Monday morning, stocks were already higher following the presidential announcement Saturday.
What to watch: Volatility around winter. COVID-19 hospitalizations are at all-time highs, and some metros across the country have had to adjust their reopening restrictions. While investors are cheering a bit more certainty around the election and the prospects for a vaccine, the threat of a double-dip recession still exists.
2. Taxes. The president-elect discussed corporate and individual tax reform on the campaign trail, but under a divided government a dramatic overhaul is unlikely. There seem to be some items with bipartisan support, including expanding the child care tax credit, modestly increasing taxes for the highest income brackets and corporations, a “Made in America” tax subsidy, and allocating more funding for the Internal Revenues Service.
What to watch: State taxes. The recession earlier this year crushed state budgets as unemployment claims exceeded even the most pessimistic pre-COVID-19 plans. Cities and states across the country have already cut staff and limited services, and they will likely need to raise taxes, which would have happened regardless of the election results.
3. Stimulus. After winning reelection, Mitch McConnell, the current Senate majority leader, came out and said he expects to have a new round of stimulus done by end of year. Additional money to individuals and companies that need it the most, especially before Christmas, can provide a much-needed boost to a slowing economic recovery. Assuming more money gets passed by next year, we know President-elect Joe Biden is eyeing future stimulus in the form of infrastructure spending in the years ahead. This also would have likely happened regardless of the election results, though a Biden administration has a greater focus on green growth.
What to watch: The debt and deficit. Deficit hawks were quiet at the beginning of the pandemic as most agreed saving businesses and helping Americans was the utmost concern. For the next round of stimulus, there is less support for another trillion-dollar-plus plan as economists and elected officials do cost-benefit analysis about helping today but potentially causing issues in the future as we deal with the mounting debt.
4. COVID-19. Americans are learning to live with the virus, and that has allowed the economy to rebound significantly since April. We know, however, that the economy cannot fully heal until we have control of COVID-19. Acknowledging that, the new administration is likely to implement a nationwide mask mandate in an effort to curb the spread of the virus, especially as the colder months hit, until a vaccine can be widely distributed. The Biden team’s vaccine plan includes allocating $25 billion on vaccine production and disbursement.
What to watch: Will people take the vaccine? Pew Research polled Americans in May and September of this year and found that earlier in the year, 42% of respondents said they would definitely take the vaccine compared with just 21% today. The country doesn’t need everyone to take it to be effective, but we should consider that there may be some hesitancy to taking the new vaccine.
5. Housing. The biggest change we see on the housing front from the new administration is the proposed First Down Payment Tax Credit. This credit, according to the housing page on the transition website, is intended to “help families buy their first homes and build wealth by creating a new refundable, advanceable tax credit of up to $15,000.” Brookings studied the impact of the three different home buyer tax credits offered in 2008 and 2009 and said that isolating the effects of such policies are difficult, but their findings show a “modest boost to home sales and home prices” while the credits were available.
What to watch: The 10-year Treasury yield. There was a bond selloff as markets opened on Monday, and investors moved to alternative assets. These actions moved the price of the 10-year Treasury down and the yield up. As of writing this, the 10-year Treasury yield is at the highest level since the start of the pandemic. It’s too soon to tell if this trend will persist, but we will watch the yield closely as mortgage rates tend to mimic the 10-year’s directional moves and could head upward in the near future.
Presidential and congressional elections can impact policy and economic growth, especially when moving from one administration to another. Our newly elected leaders are dealing with a country battered by both a health and economic crisis, and strong bipartisan politics are needed now more than ever. As the country works through the transition into 2021, we will continue to monitor the state of the housing market and economy and share developments as they arise.
Nik Scoolis, senior economic research analyst for Zonda, contributed to this article.This article original appeared in our sister publication, Builder.