Real Estate Values and Elections with Sherwood Clements

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Travis

What do you think most impacts how people vote in a presidential election? A few years ago, Virginia Tech's Sherwood Clements theorized that for people who owned property, how much the value of that property had changed during the most recent president's term would determine whether or not they would vote for that person again.In his words, he thought people would be voting with their pocketbooks. About a year ago, he and his co -authors' results were published in the Journal of Real Estate Research. And while I don't own a pocketbook, I do know a lot of homeowners, so I was curious to know what they actually found and how they think it might impact our future elections. Sherwood is a collegiate assistant professor and the William and Mary Alice Park Jr. faculty fellow in the Blackwood Department of Real Estate in the Pamplin College of Business.

Sherwood and I talked a little about how they went about researching this topic, what some surprising finds were along the way, and how much he thinks the pocketbook will play a role this coming November. I'm Travis Williams and this is Virginia Tech's Curious Conversations.

Travis

What is the home voter and what were you curious about related to the home voter?

Sherwood

About a decade ago, I got with my co -author, Alan Tidwell, and I basically said, Alan, you know, we're real estate is our number one asset for, you know, almost every family in the country, you know, unless you're just super rich, about 1%, so to speak. And I said, people ought to be voting with their pocketbooks. And what I meant by that is if their home values are going up, they ought to be voting in favor of that. In other words, voting for incumbents who are doing a good job. And the moral of the story is, I said, let's do a paper. And I know it sounds crazy, this was a decade ago, but sometimes it takes years for us to get these papers published whether it be just making time to do it, because we often only work in the summers, or we get rejected three or four times by different journals and have to do revisions, gathering extra data, whatever. And so I do the literature on my papers. That's one of the big parts of me. I'm not a data guy. I'm more about what should be right and then look at the literature and see what's been done. And basically a prior professor, Bobby Fischer, Fischer had labeled the home voter hypothesis and said that basically people will vote for beneficial policies if their property values are going up, Travis.

Travis

Okay, so the home voter is really just people who own real estate and vote.

Sherwood

Absolutely. Okay. And if they're doing good, they're going to vote for what is making them do good. And in theory, would that be the incumbents, right?

Travis

Yeah. And so you went about you wanted to try to figure out if that was true though, right?

Sherwood

That's exactly right.

Travis

And so how did you go about doing that?

Sherwood

And we basically gathered data. We had basically, in case you're curious, we had 87 % of the counties in the whole United States. 2747 counties worth of data. You know, obviously, we might not have every small rural county, you know, could not gather, you know, or maybe some Alaska or Hawaii, you know, but but. 87 % and we got them in six elections between 2000 and 2020. And basically we ran, you know, our statistics, regressions and things to find our results. And, and, and, you know, we got several results in here, but, let me see the, I guess the main one to talk about is, is the fact that we found, let's say you're having prices going up. Like, let's just say it went up the last four years, 5 % a year, so 20 % in Virginia. Then you would be anywhere from 12 to 17 % more likely to vote for the incumbent than you would originally. Now, is that if you didn't vote for them in the past or is that switching to the incumbent? Regardless of how you voted, all things being equal, we've finally found that the average voter...If their home price, basically, what I'm basically telling you, for every 1 % your home price goes up, you're 0 .6 to 0 .85 % more likely to vote for the incumbent. So that's, and you asked me why it'd be a range. We can put different control variables in to control for things like market indexes and this, that, and the other types of voters and things. And so the numbers tend to vary a little bit. you know, have a range.

Travis

Is that what you kind of thought or theorized would happen when you looked at those numbers?

Sherwood

Yeah, you know, it doesn't sound like a lot, but it is. I mean, and this, let me tell you something that'll make more practical sense to you. Basically, what we found that only 23 % of the counties switched from Democrat to Republican or Republican to Democrat over the course of these six elections.

In other words, about a quarter of the country. If that happened, the vote changed on average 14%. And you know how close these presidential elections are. 14 % is a big jump. So that first number may not have made as much sense. It didn't sound like much, but I think that does what I just tell you right there.

Travis

Yeah, I think there was even some stuff in this paper about those swing counties, maybe even swing states, and how that could be extremely impactful to those outcomes.

Sherwood

Yeah, I mean, like I say, you really, our elections are coming down to basically a quarter. You know, we love to say it's that middle. You know, you got roughly 20 or 40 percent on each side and it's all in the middle. Well, that's what we basically found. A quarter of the country is deciding everything. I mean, who votes Republican or Democrat? And the swing is, you know, 14 % is not insignificant. I mean, you see these presidential elections come down to three or four percent.

Travis

And when we talk about the home value, that's just like the value of your home. That doesn't include like, I'm thinking like interest rates.

Sherwood

Right. No, this is literally, we've got indexes like Kay Schiller and things and Fannie Mae and Freddie Mac that show. different locations, they use everything from repeat sales to appraisal values, and they can show really pretty good about what areas of the country are going up and down, you know, values and locations.

Travis

Yeah. And so one of the other things that I read in there that I thought was interesting was that those people, it seems, tend to vote that way. It seemed like in your paper, that's not necessarily the most beneficial way to vote.

Sherwood

That's right. And I'll say this, what we basically found is, it's probably smarter of us to change parties each four years. Don't give anybody a second chance. And that is present. I realize we haven't got the longest sample size, 36 elections. But what we basically found, I mean, is we need to, we don't need that second term, whether they're resting on their laurels or whatever. You know, we need somebody that would prove themselves every four years. And I guess, let me word it the way I should word it, what we basically found in essence was the ones that made money, the voters that made money on their housing after elections were actually the ones that flipped to the non -income party. So that may be saying the same thing, but I mean, it is saying the same thing, but what we found is, Those counties that actually flipped to the non -income party, in other words, voted for the new person, had the better returns to their real estate. I don't want to act like it's the whole country. You see what I'm getting at? So just those counties you found, if they voted for the new person, whoever that might be, their real estate values over the next four years went up? Tended to increase, exactly.

Travis

Do we know why that is?

Sherwood

I mean, I didn't scan, you know, those exact numbers. What is that? 641 counties is roughly what we're talking about. So those 640 counties, I didn't scan for exact locations. I'm sorry, I'm a little bit, you know, I can't really answer that question well. I guess what I want to tell you is this scattered all across the United States. These counties weren't in any one spot. You know, there were certain areas like Washington state and Maine and right there where Michigan hits Illinois and Indiana, where there was a lot in Ohio, there was a lot of these counties. But I don't want to sit here and tell you it was, it was, you know, one certain part of the country.

Travis

Well, you know, we're heading into another presidential election and I feel like my house, the value of my house is going up. What should we expect may in fact happen or how you think that will impact voting in November?

Sherwood

Well, if you listen to our research, it sounds like most people are going to vote for the incumbent, right? And then it may not turn out so well, you know, they shouldn't be chasing returns. That's what our research has basically said. And that's that we may vote the incumbent president in and then we might not have the same returns in the next four years.

Travis

It'll be interesting though in this election, I guess, because either way you vote, you're voting for somebody who's already been president.

Sherwood

That's exactly right. It's not a perfect scenario. And this election cycle has really been... We know most of us have had home values go up because of all the inflation. Some of that is actually due to the government. Or government policies, I should say. So, you know...Yeah, I mean, does that mean Biden's gonna win in a landslide? I'm not so sure about that. But if you look at our research, they're saying people are gonna switch the income with rising residential values.

Travis

Well, I think you've provided one piece of maybe this giant puzzle for us to consider as we head towards November. And it's a really interesting piece.

Sherwood

Right, and I do appreciate that. I actually did another paper. I don't have all the results in front of me, but you'd be interested in this. We published another paper in another good journal that said developers tended to slow down within six months of a governor's election. In other words, there's some political risk there. They tended to not build as much in that last six months before a gubernatorial election, if you find that interesting.

Travis

I do find that that's fascinating. It sounds like maybe you take a little bit of a wait and see approach as to...how the new person might shake out policies and such.

Sherwood

That's right. And I know I've had board members look at me funny, but that's what we found. And I know people use statistics and find all kinds of things, but they don't lie. I mean, you know that. We're in academics. And so we take unbiased look at the data and just see what it tells us.

Let me tell you one other stat that you may find interesting and I'll quit. We looked at quartiles of the, like in other words, you know, the top quartile and bottom quartile as far as real estate values, you know, in other words, we took the counties and divided them by four. And then we took the ones that rose the most and the ones that rose the least or didn't rise. And we found out that those were the most gain in value. In other words, that the...that quartile, that 25 % of those counties that gained the most value were again about 27 % more likely to vote for the incumbent. So I guess what I'm telling you is this is particularly true if your real estate are really increasing, increasing the most, which makes logical sense, right?

Travis

Yeah, I think it makes sense if you feel like things are going well for you, you would want them to keep going well. And was there anything that surprised you when you did this research?

Sherwood

Yeah, the part about where we found that the counties that actually changed to the non -income, you know, the new person, they tended to have better real estate values. And I mean, excuse me, better real estate returns, returns in the next four years. That was pretty, that was an interesting finding.

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Travis

And thanks to Sherwood for sharing his insights related to real estate values and the presidential election. If you or someone you know would make for a great curious conversation, email me at traviskw at vt .eu. I'm Travis Williams, and this has been Virginia Tech's Curious Conversations.