George Bush – 1989

It’s January 1989 and George H. W. Bush was just sworn in as president. The economy had been booming for several years and the former vice-president was elected in a landslide.

Part of that booming economy was a booming housing market. House prices in the Northeast boomed from 1986 to 1988. California prices boomed from 1988 to 1991. Although house prices were falling in Texas and the oil patch, overall U.S. prices were up 14% from January 1987 until the election in November 1988, according to the S&P CoreLogic Case-Shiller Home Price Index

Eight states voted for George Bush that haven’t since voted for any other Republican presidential candidate. Six were in the Northeast. One was California. All of those states saw big house price increases in the 1980s.

By 1990, however, house prices nationally had stopped increasing. Homeowners had been happy when house prices were rising fast but that was ancient history. As time went on, it became hard to sell your house and many homeowners became worried and angry about their slowly falling real house prices, and their quickly falling family net worth. The number of households losing real home equity was far larger than the number losing jobs during the 1990 recession.

By the November 1992 presidential election, house prices nationally hadn’t increased in 3 years and real, inflation-adjusted house prices had fallen 11%. Real house prices had fallen 22% in Los Angeles and 18% in metro New York.

Capitalizing on widespread financial dysphoria, the theme of the Bill Clinton campaign was, “It’s the economy, stupid.” George Bush lost the election despite his landslide victory just four years earlier. 

If real house prices had increased at a steady, sustainable rate in the late 1980s and early 1990s – instead of booming and then drifting lower – I don’t think Ross Perot would have gained nearly as much traction, and George Bush would have been reelected in 1992.

Joe Biden – 2021

Last month, Joe Biden was inaugurated president, and U.S. house prices have been booming again – up 10% in 12 months, according to the latest Case-Shiller data. That’s faster than during the 1980s savings-and-loan (S&L) real estate boom mentioned above.

Right now, it looks like U.S. house prices could leave earth’s orbit in the spring of 2021, and we’ll continue to see price increases larger than during the S&L boom. 

If history repeats itself, inflation-adjusted house prices will be falling in 2024. That would be an extremely difficult headwind for President Biden and the Democrats to overcome.

The Biden administration could, theoretically, take immediate action to slow down the current runaway train of house prices and reduce the odds their administration will be derailed by falling house prices in 3 years. 

Unfortunately, the American tradition is for the government to promote higher house prices. In part, that’s because incumbents tend to get a boost when house prices increase fast. The flip side is always ignored – incumbents tend to lose when real house prices are falling even a little bit. 

It doesn’t take large declines to have big impacts. Behavioral economics would say that losing $1 of housing wealth creates 2 to 3 times more negative emotions as winning $1 creates positive emotions.

Fortunately, we have dozens of ways we can help stabilize house prices in good times and bad. A first step would be to get rid of all the government policies that destabilize U.S. house prices and make housing booms and busts much larger than they would be otherwise.

There will never be a better time to make changes to U.S. housing policies than now after house prices are up 10% in a single year and up 70% over the last 9 years. The time to raise the levee is while the sun is still shining. Once the storm hits, you can only do damage control.

If house prices continue to skyrocket in the spring of 2021, and then start to fall before the 2024 election, Joe Biden and the Democrats are not likely to be reelected to the White House. 

People vote their pocketbooks and their houses are by far the most valuable items in their pocketbooks. Whether in 1992 or 2024, people naturally get angry – and want change –  when their house prices and family wealth fall.

House price increases that are more reliable and sustainable over the long haul would lead to much more economic growth, more family wealth creation, more stable family wealth creation, and less wealth inequality, as well as, more stable governments. 

But right now it’s looking like, “It’s the economy, stupid” could become every challenger’s campaign theme again in 2024.

Added later. The younger George Bush may not have won the 2004 presidential election if house prices hadn’t been increasing so incredibly fast. He won by only 35 electoral votes. (Joe Biden won by 74 electoral votes.)

By the 2008 presidential election, however, house prices had been falling for 2 years and the party in power lost in a landslide. If, after the 2004 election, President Bush had slowed down the skyrocketing house prices, perhaps the real estate boom wouldn’t have peaked until 2007 or 2008, and John McCain wouldn’t have lost the 2008 presidential election by so much.