How the Election Could Affect MB Real Estate

By Dave Fratello November 10th, 2016.

The people said they wanted change. Now we have a largely un-predicted outcome in the presidential election, one-party rule in Washington, D.C., and many questions heading into 2017 and beyond.

But the question for a Manhattan Beach real estate blog is simply this: How might the election results from this week impact Manhattan Beach real estate?

Is everyone going to want to leave? Is everyone still going to want to move here? Does the election have any impact on property values?

We'll look at the policy outcomes from this election that seem most relevant.

Local Votes

The election results most closely aligned with Manhattan Beach real estate came with passage of Measures C & EE, two local school bonds. If you believe that MB schools are a big draw for real estate buyers, and that the quality of schools and school facilities matter, well, then we all agree.

The measures won handily:

Measure C ($114 million to rebuild/repair elementaries & middle school) got 70% support, and

Measure EE ($39 million to rebuild Mira Costa high school athletic facilities) got 67% support.

Both measures needed to exceed a 55% vote threshold for local school bonds. According to DigMB's summary: "Measure C is estimated to cost about $15 per month for the typical homeowner; Measure EE is estimated to cost $5 per month; all tax-deductible. To determine your individual cost, multiply .0003 times the assessed value of your home found on your property tax bill."

The long-term positive impact of these measures should solidify property values and continue to enhance the desirability of our community.

California/Statewide Votes

We mentioned "one-party rule in Washington, D.C.," because that's a novelty compared with recent years. We also have one-party rule in Sacramento, which is not so new these days, but there are at least two things worth mentioning on that score.

First, state Assembly member David Hadley, a Manhattan Beach resident and Republican, lost his 66th District seat to Democrat Al Mirasutchi, whom he had defeated in 2014. Manhattan Beach voters supported their local boy by a 500-vote margin, but he lost by nearly 8,000 district-wide.

Second, Hadley's loss helped Democrats re-establish a 2/3rds majority in the lower house. This can speed some legislation through and enable a veto override.

Perhaps the most important policy questions settled on the November 8 ballot pertained to taxes and marijuana.

With 62% support, Prop. 55 extends an incremental tax surcharge of 1-3% for individuals earning $263,000 or more, or joint filers with income of $526,000 or more. (The rate increases with income.) This "temporary" tax increase was passed as a 6-year measure in Nov. 2012, but instead of expiring in 2018, it will now continue through 2030. That revenue stabilizes the state's budget outlook, and could prevent the drama and pain that all of California has suffered during economic hard times. Then again, you don't need a green eyeshade to see that it continues California's perilous reliance on high-income earners for vast chunks of state revenue.

Prop. 64 legalizes and regulates marijuana, supplanting the state's medical use law in favor of a system that controls marijuana more like alcohol. It is possible to view this as a quality-of-life issue for California – pro or con, however you view it – or as an economic issue, as a vast black market could come into the clear, with greater business and tax revenue. (There is a presumption that the federal government will allow it to go into effect.)

If you visit states where marijuana's already legal (Colorado, Oregon, Washington), you typically find low drama and minimal impacts. That's probably the best hope for Manhattan Beach, which, to date, has kept medical marijuana far below the radar. How will the city regulate cannabis locally, when the question comes up?

Worth noting: Local voters supported Prop. 64 by a 61%-39% margin – greater than the 58-42 margin statewide. Take note, city fathers.

Finally, there is some new life being given to talk about California seceding from the United States of America ("Calexit"). Not because the subject was on the ballot, but because the state's voters went 61%-33% for the Democratic candidate for president, while the Electoral College is set to select someone else. The opinion goes something like this: "Screw you guys, we're outta here." We'll go ahead and rate secession as unlikely for now.

The National Front

Within the city of Manhattan Beach, the prior 2 presidential elections saw local voters go for Democrat Barack Obama for president (57%-42% in 2008, 50.3%-47.6% in 2012).

In a stunner of sorts, initial vote totals for Manhattan Beach show a much more decisive tilt toward the Democrat, Hillary Clinton, this year, 61.4% against the 32.3% garnered by Republican Donald Trump. This put Manhattan Beach almost perfectly on par with the statewide results. (Final results are due in December.)

What will be the impact from Trump's election? The big questions from the national front that might impact local real estate have to do with war, taxes, the economy and an atmosphere of uncertainty. You could say that just about any time, but the questions seem more open right now.

The newly elected Congress and president espouse a pro-business, anti-tax philosophy. To the extent that this preserves or boosts the recovering national economy and GDP, local real estate should benefit. Trade wars? We'll see.

The response of financial markets and the Fed will have the greatest long-term impacts. During the 2008-2009 economic meltdown, two notable things impacted our local real estate. First, Manhattan Beach became viewed as a "safe haven" for investment in a difficult economic environment, bringing loads of cash into the market when local real estate had just bottomed out. A local real estate recovery began here earlier than many markets.

Second, extremely low interest rates combined with the difficult of obtaining a mortgage for more "typical" buyers nationally skewed the mortgage market and real estate activity generally toward luxury-market buyers like those targeting Manhattan Beach. Cheap money helped fuel a quick rise in prices... and that cheap money is still there.

There can be no doubt that a rise in interest rates – that threat which seems always to be just around the corner, somewhere – would represent cold water for real estate in general, and for Manhattan Beach as well. The Fed has warned recently that those rate increases are nigh, but if the markets go wobbly for any reason, rates may be held steady in an effort to preserve the "new normal" that we have been operating under for some time.

Imagine if the converse were true: What would your forecast be if the newly elected leadership were trumpeting the dangers of cheap money and railing against monetary policies that have been drivers of the economy in recent years? You don't hear such bears and purists now, and neither does the new leadership.

Our local real estate market rose substantially during wartime, from 2001-2008. There's no telling what troubles the world may see under the new president, but we have recent experience that foreign conflicts did not harm local home values. 

Seasonal Timing

There is seasonality to every local real estate market. We're entering a traditionally slow time now. If buyers get more scarce, it's going to be hard to blame the election for that.

What matters is the Spring market in 2017 – roughly February through May.

Some may say the sky will fall just around then, as the new president takes the reins. But it's reasonable to imagine that time as one where the financial world is trying to hold steady.

Without an obvious economic shock, Spring next year could look very normal.

Watch the Cycles

Financial markets and real estate markets are cyclical. The greatest "threat" to local real estate is probably not 1600 Pennsylvania Avenue, and may have nothing to do with this year's elections.

The greatest concern has to be whether our market has finished the upswing part of a cycle and is heading toward a correction. With all other things being equal, you can feel a change in the way the wind is blowing.

Nothing says values have to "correct." Home values could remain level. And it's axiomatic that luxury markets like ours don't "lead" a housing market downturn. If the broader markets are still healthy, why should Manhattan Beach flip?

But we are at a point now where you can't be certain about continued, substantial annual increases in the short term. It's been 7 years since the bottoming-out ended, while at least 4-5 years saw marked, regular price increases.

They say you can't run uphill forever. But you can go for a long time if you train. What we mean here is that as local home prices have gone up, certain aspects of value in Manhattan Beach have also increased. The underpinnings of the market – the quality and power of buyers, in particular – are very strong.

If there's a cycle and it reverses, that might be attributed to a purely local phenomenon playing out. But some will blame Washington, D.C., because that's what people do.

Don't Go to Canada, Stay at the Beach

More than once, people have approached Dave about selling if the presidential election went the "wrong" way. The hypothesis was that home values would crash with an unfortunate election result.

Well, if you need a home price consultation, hey, sure, give Dave a call.

Now, have you even looked at what's going on with home prices in Canada?

In the places you'd want to be, there's a bona fide bubble. Please don't think about buying at the peak in a place that's beautiful, but runs very short on daylight for half the year.

If you're here now, you're already in paradise. Endless Summer.

Stick around. We need you. Make it all work!

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