What felt to many like the longest election in American history, complete with an Election Day that stretched throughout the week, has now finally ended. While there may be some drama between now and then, President-Elect Joe Biden will be sworn in as the 46th President of the United States on January 20, 2021. With a new administration coming into office, many are wondering how a Biden Administration might impact the new construction housing market.
As I’ve written many times over this year, so long as interest rates stay low and supply remains below overall demand, we will continue to see strong performances across the new home industry. There is nothing on the horizon that seems likely to change in the near term. While Biden's approach may vary depending on the final outcome of Georgia’s Senate run-off elections, and thus partisan control of the Senate, the fate of the housing market over the next year will largely be dictated by issues beyond housing policy. Specifically, 2021’s economy will largely be dictated by pandemic policy and our collective response to the pandemic.
News of a highly effective vaccine not only sent the markets up, but it also led investors to move toward higher-risk assets and away from lower-risk bonds. If that trend continues, it could push mortgage rates up. However, the FED seems committed to maintaining near zero-funding rates, and it’s hard to imagine inflationary pressures pushing rates up too much. So mortgage rates could inch up, potentially impacting affordability around the margins, but not for the vast majority of customers.
A Biden Administration will almost certainly walk into a pandemic that is raging out of control. As the nation moves indoors for the winter, cases have already spiked well above 100,000, and we appear headed for even higher daily cases. There are more hospitalized Americans with COVID-19 now than at any time during the pandemic. If this trend continues, and if the spread continues to be as geographically widespread as it currently is, it’s possible a Biden Administration could call for short-term shutdowns to try and suppress the spread. While that could impact the entire economy, including the housing market, the industry is prepared to thrive in that environment after learning how to succeed in April, May, and June. And, we expect Congress to pass another major support bill in the near future, though perhaps not until after the inauguration.
The bigger question, and perhaps the biggest challenge Biden will face on the pandemic side, will be public trust in the vaccine once it becomes broadly available. A vaccine needs to be safe, effective, and trusted in order to serve its intended purpose. Today, polling shows America is split on this question, with about 50% saying they will take the vaccine and 50% saying they won’t. If only half the people take a 90% effective vaccine, roughly 45% of Americans would be protected. That’s not good enough to get us past this problem. If trust in the vaccine moves higher, and Americans know there will be enough doses for everyone in the first half of the year, you could see any downside economic risks mitigated as people see the light at the end of the tunnel.
What if, as is still possible, the Democrats win both run-offs in Georgia, and thus gain control of the Senate? Biden has signaled he would roll back the Trump tax cuts. Would this harm the housing market? Given that Biden has promised not to raise taxes on anyone making less than $400,000 annually, which would only impact around 3% of Americans, it’s hard to see this creating a massive drag on demand. Keep in mind, it’s unlikely such a bill moves quickly given the pandemic and the eventual distribution of the vaccine, which will be a powerful demand generator throughout the economy.
What about regulation? Here, it’s possible we could eventually see new rules which raise construction costs, but it seems unlikely that anything substantial would come in time to impact the prime selling season of the 2021 housing market. However, Biden has also put forward policies around affordable housing, which could create new opportunities for builders and developers, including the potential for down payment support tax credits.
To simplify all of this, supply remains below demand, and interest rates remain low. That means we should continue to see strong results for home builders as we move into 2021. The pandemic will create challenges, but the industry is prepared, and we should expect fiscal and monetary support from the FED and Congress to continue. There’s no reason to suspect any changes a President Biden could make that would dramatically alter the solid outlook for 2021.
