Here’s an interesting investing fact: Housing stocks are historically top market performers in election years.
In the two-year period into and out of a U.S. Congressional or Presidential election, Housing stocks (ITB) have been true outperformers. According to our team’s research, since 1992, Housing stocks trounced the S&P 500 in election years, beating the broader market by 30% on average. The year after an election year, performance was equally stellar. Housing stocks beat the S&P 500 by 12%.
“The reason is pretty straightforward,” says Housing analyst Josh Steiner, “politicians, in an effort to get elected, tend to make a lot of promises.” Since there’s a lot of overlap between voters and homeowners, many of those promises are aimed directly at homeowners. This helps generate positive housing stock performance.
The current election cycle may be different. In 2016, Housing stocks were down -5% relative to the performance of the S&P 500.
Why?
“The key takeaway for us is that yields have tended to rise in non-recessionary, post-election periods,” Steiner says. Yields rose rather dramatically this time around, hurting housing. Since the 10-year Treasury yield bottomed in July at 1.32% (versus 2.54% today), Housing stocks are down -2% versus +7% for the S&P 500.
Rising rates could continue to hurt housing. Buyer beware.