Will Housing Market Play a Role in Tomorrow’s Elections?
They reside in red states, but the U.S. housing market has left many of them feeling blue.
House prices have risen to record highs in the past five years, but the so-called “red” states, those which usually vote for the Republican Party, have not benefitted from the real estate boom as much as the “blue” states, which are traditionally Democratic Party strongholds.
Meanwhile, median prices are beginning to fall, especially in some “blue” states, with the median price down 2.2 percent in the year ending September.
So will the Republican party suffer at tomorrow’s mid-term Congressional elections at the hands of both “red” state homeowners, because they missed out on much of the housing boom, and also receive blame from “blue” state voters because their house prices are now falling as well?
“The housing market has not been great in some red states, particularly in cities such as Detroit and those affected by manufacturing, so they haven’t really enjoyed this prosperity quite the way the rest of the country has,” said Peter Morici, economist and professor at the University of Maryland’s Robert H. Smith School of Business.
“The blue states, for all their complaining about President Bush, have done very well by his economic policies and so their housing values went up a lot.”
With all 435 U.S. House of Representatives seats and 33 of 100 U.S. Senate seats at stake Tuesday, sour sentiment surrounding the housing sector could be among many factors in the Democrats’ bid to reclaim control of Congress from Republicans.
Morici predicts Republicans will lose seats in the Ohio Valley and from the stretch of western New York and Pennsylvania on out through Michigan.
“They (red states) don’t need a housing value collapse for them to turn on Bush, they are turning on Bush by the fact that their housing values have not gone up in the first place,” Morici said.
By comparison, home values in many “blue” states, on both the East and West coasts of the U.S., soared in value over the past few years. The Washington D.C. area saw house prices rise almost 129 percent, while the California housing market gained 118 percent from the fourth quarter of 2000 through the fourth quarter of 2005. The New York housing market grew by 75 percent.
But according to the Department of Federal Housing Enterprise Oversight (OFHEO), price gains in “red” states of the Midwest paled in comparison. From 2000-2005, Michigan and Nebraska appreciated by about 23 percent and 22.5 percent, respectively, while Ohio and Indiana showed only 21.4 percent and 20.3 percent gains.
Traditionally, house price appreciation has been far less volatile in the Midwest and in the center of the country, and so during the periods of high appreciation rates they have not been as high, and they have not been as low during periods in which the housing market is in recession.
The Bush administration coincided with the record housing boom that not only benefited homeowners, but buoyed construction employment, and supported an economy recovering from the 2001 recession.
The U.S. Federal Reserve played a pivotal role by lowering interest rates to the lowest levels in a generation after the2001 recession, easing home mortgage rates, before raising interest rates again in the past two years.
Tracey Schmitt, spokeswoman for the Republican National Committee, said that the economic policies of recent years helped empower homeowners.
“It’s no coincidence that under Republicans, interest rates have been low, people have more money in their pocket books to pay their home loans, and homeownership is at a near record high,” she said.
The housing boom may be turning to a bust in some areas, with some experts predicting the median home price to fall 3.6 percent next year.
Some metropolitan could see double-digit percentage depreciation in coming months, and prices could continue falling for several years, led by Florida, a “red” state by the slimmest of margins in the past two elections.
The greatest price drops are expected in many metropolitan areas that are in both “red” and “blue” states, including California, Arizona, Nevada and the greater Washington D.C. and Detroit regions.
“I’d avoid a blue state for a housing investment right now,” said Lawrence J. White, professor of economics at New York University’s Stern School of Business. “On a national level, price declines will be more extensive on the coasts.” “I’m not a housing optimist at this point,” he said.
