Effect of political factors on Real Estate growth

Posted by Lorraine Ross on January 26, 2008

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Do not be fooled, political factors have a direct effect on the growth of the real estate market. We would like that the effect of political factors on real estate is minimal, but that depends on the state of the economy at the time. Remember, real estate growth coincides with economic factors, and those economic factors are also affected by political factors.

How do political factors play into the real estate picture? The state of the economy is frequently the result of strong or weak political leadership though not always. There may be a weak economy with high unemployment and prices, but if the mortgage interest rates are low, the real estate market will not suffer, and thus, it will be a sound investment for investors. It is rare that real estate growth slows because of the economic conditions within the rest of the economic sector, but it may experience less growth than it would if the entire economy were strong.

The effect of political factors on real estate can vary among states just as the state of the economy can differ between cities within a state. As the inflation rate rose from 1.97% in August to 2.97% in September, we see a trend that may have a detrimental effect on the real estate growth, especially with October’s unemployment at 4.7% for the second month in a row. Interest rates are currently remaining below 7%, but if that figure should increase, the real estate growth rate may decrease to accommodate higher interest rates.

During the current presidential administration, we have seen inflation increase substantially and unemployment remain far too high. More people are uninsured today than in the past, which also contributes to a weak economy. None of these factors thus far has affected the real estate market to the degree that one would expect, if at all.

The real estate growth rate of rentals, however, remains high, with renters often having to spend as much as 40% of their gross pay on rent. Are these fueled by political factors? Certainly with the money the government is spending on the war in Iraq, there is some concern over the effects on inflation and the strength of the economy.

As we draw nearer to a new election year in 2008, other political factors may present themselves as the country looks toward the possibility of a Democratic female president, while others are certain the Republicans are going to remain in power. What effect these political factors will have on real estate will not become apparent for at least another year when the election results close. In the meantime, we need to follow the political factors to determine what effect the current political factors may have on the security of real estate investments and real estate growth. Currently the market is still strong, and there is no reason to think it will not continue to be strong. The market is not volatile like other economic and financial markets, so it tends to stay reasonably strong, even when other markets are losing ground.