How Trump Got Elected: The Housing Perspective
Everyone is highly focused on the impact Fake News sites had on the election, the real estate market, however, is a better proxy.
While many people in the media space want to point the finger at Fake News sites as the main culprit for President Elect Trump’s surprising win, I doubt the number of “Likes” generated on Facebook was the primary factor.
Instead, after reading a couple books like the Hillbilly Elegy, and The Politics of Resentment, which delineated that the differences and inequality in America had been brewing for sometime. Unfortunately, because those differences were untouched for so long, the result from the most recent election is the outcome of this deep resentment that had been brewing in America for quite some time.
So, can we prove that such a difference existed? Perhaps not, but we can definitely use housing data to see if such a dichotomy existed. The results might surprise you.
But before we jump in, lets have some building blocks (all these data points came from Zillow data).
Many experts like to use the 30% rule when trying to determine how much one should pay for housing each month. The rule, as you might guess, is that you shouldn’t spend more than 30% of your monthly income on housing costs. The above chart shows that, nationally, many renters are spending exactly 30%, and have been for the most part since 1979, however, home owners are spending a record low average of 15%.
Let’s get a little bit more narrow, and focus on the % of income spent on housing since 2007 (the year right before the most recent great recession). As we can see, when we compare buyers to renters, buyers are spending only half as much as renters on housing (as part of their income). Which begs the question, why aren’t more people buying homes, instead of renting? Let’s look at median wages to find out.
Median income, since 2007, has been growing on average at 1% YoY, or as some would say, median income has been flat over the past decade. This seems odd, given the stark difference we’re seeing in renters and buyers, so lets look at what’s happening with median home prices.
In 2016, median home prices actually hit an all time high and are even higher than what they were in 2007 (the year right before the most recent great recession occurred). Let’s now compare that to rental prices.
Comparing the growth rate of median home prices to median monthly rental prices and median income we can notice some oddities. If we compare the anemic growth rate of median income from 2016 to 2011, then median income actually rose 12% during that time period, which is better than a flat rate of 1% YoY. Comparing the US National median monthly rent price, from 2016 to 2011, we can see that median rents grew 14% during that time period. Comparing income growth to rental price increases during the same time period, 12% vs 14%, we can see that rent prices are slightly exceeding income growth rates. Finally, comparing the US National median home prices from 2016 to 2011, grew at 23%, which outperformed both income growth and rental price increases.
Which begs the question, if income growth is flat, and rents are growing slightly faster than income, then how are people who are buying homes spending so much less of their income on housing costs when compared to renters? Especially, when housing prices are growing 91% faster than income?
Now, the who’s buying and how will be an entirely different post. But acknowledging that there is a stark difference in lifestyle between those who rent vs those who buy (especially given the flat growth of income) allows us to recognize that there is stark inequality across the country.
Now looking at the median price of a home for each state, we can definitely identify a cluster based upon how each state voted. Outside of Maine, Illinois, and New Mexico, Democrat voting states tend to have the highest median house prices. When we compare the average median price of a Democrat voting state to a Republican voting state, the median price of a home in a blue state is 81% more expensive than a home in a red state.
When looking at the swing states, the contrast is even greater. All the swing states that voted for Hillary had a median home price that was greater than the national median.
So when did this inequality start? And how did it get so out of hand? If you read the Hillbilly Elegy, or The Politics of Resentment they both touch upon the last time we had a GOP member in charge of the Executive Branch. So if we compare the start of Obama’s last term to the start of Bush’s last term, the median home price of those swing states dropped on average by 11% during that time. While that doesn’t justify or explain why those states might’ve chosen to vote GOP this time around, the numbers make it easy for us to see why Trump’s rhetoric and campaign promises might have proved alluring to the people who live in those states.
So while many news organizations might want to point at Fake News sites as the reason for a Trump victory, because its the sexier story, the sad reality is that there is a stark difference between left and right leaning states. From a housing perspective it was an 81% difference in haves and have nots.
Those divisions are the real reason why so many of the prominent news media organizations failed to capture what many American’s were actually feeling about the direction of the country. So while its easier to for established news organizations to blame Facebook and Fake News sites, the bitter truth is that too many of those new organizations were actually out of touch with what the rest of America really felt; because chances are those journalists were probably spending too much time thinking about how they were going to be covering their rent for the month.
(h/t to Will Cooper for bringing the housing prices and idea to my attention)
