Electorial Thinking: On A Cloudy Day (When Congress Is Not In Session), You Can see The Housing Market
Posted by Jonathan J. Miller -Wednesday, November 1, 2006, 11:30 AM
After the release of the latest GDP numbers [MW] which showed a further decline in the economy (and could still be too optomistic), I have taken great interest in discussing the economy with friends, relatives and associates. I have worn them out talk about the housing market so this apparently was a refreshing change.
In my anecdotal, casual survey of a handful of people, all seem to present the same recurring theme. Business is really slow right now. Examples included a local retail store, a national manufacturer, a national service company, a real estate agent, a mortgage broker, among others. In fact, my firm is seeing a lower volume of assignments for the month of October, yet my web traffic is surging. It feels like a pre-election economic lull, where people are gathering information, but holding off taking action, or cutting back on purchasing goods and services until they get the “buy” sign. Of course this is only anecdotal.
That being said, the mid-term elections are looming on November 7th. Granted they are mid-term elections, but I wondered if that is exagerating the economic slowdown. I would guess that GDP results are going to be lower next quarter as a result.
My rule of thumb regarding elections has always been that mid-term elections are characterized by people voting along party lines and issues, whereas presidential elections, are characterized by people who vote with their wallet.
Here’s a summary by Barry Ritholz
Of course, like correlating the winning conference (American or National) of the Superbowl champion to the stock market [Matrix] cause and effect are suspect and whatever pattern emerges is probably just coincidence. Still, its interesting to consider.
To take it a step further, we could then correlate this January’s Super Bowl winner to next year’s housing market fate via the financial markets, but I digress…
The Ned Davis report tracked the percent gain in stocks by the political party of the president and majority party in congress from 1901 through today.
the historical data depicts market returns that vary greatly under Republican or Democratic leadership. The same data also suggest that while presidential races may dominate the statistical landscape, a more interesting interaction between politics, the public and stock prices is likely to take shape. And it has very little to do with who wins or who loses.
Van Kampen takes it a step further by referring to the “Congressional Effect”, a report by Michael Ferguson and H. Douglas Witte, that refers to how equity returns vary greatly depending not on the Congressional majority but whether Congress was in fact even in session. …daily returns when Congress is in session range from 1 to 4 basis points per day. When Congress is out of session returns range from 5 to 15 basis points a day.
Of course, when correlated with the “Weather Effect” : cloudy weather translates into lower-than-usual stock market returns because investorsâ€™ moods are sullen. The Congressional Effect has proved to be twice as strong as the Weather Effect. (hang on, I’ll promise I’ll get to the point.)
Pretty interesting and silly at the same time, but consistent with the theme that housing markets don’t like uncertainty, just like financial markets. The idea that the markets move more efficiently, or simply just more, when Congress is not in session is pretty amazing. I’d run for the hills on a cloudy day when Congress is in session.
One thing is apparent, the housing market is not an election issue [Planetizen] this year because the housing message is mixed and therefore probably won’t influence mid-term elections. Although the national housing statistics are overwhelmingly negative, local housing markets across the country cover the entire spectrum of performances, or market stages and therefore have not galvanized any sort of political perspective. I find this a little surprising given the extensive media coverage and bubble blogosphere of housing of late.
I am not sure what my point is here after all, so lets vote.