Politics and Real Estate: It's All Local...Or Is It?

Some political junkies may be familiar with the phrase, “All politics is local.”  This statement is attributed to the longtime U.S. Speaker of House “Tip” O’Neil during the 1980s.  By this he meant that in a representative government like the United States the concerns of small towns and municipalities can have significant impact on policymaking on a national and even international scale.  As applied to politics, this is probably a truism, except when it isn’t.

There may be times when national concerns trump local politics so that effective or even popular hometown representatives may be voted out of office in order to effect a broader national policy.  The mid-term Congressional elections of 2006 are probably a good example this as voters seemed to be voting largely in response to their dissatisfaction with the Bush administration’s handling of the Iraq war and accordingly changed the majority party in both Houses of Congress.  In that election, national concerns for voters seemed more influential that local ones.

You may be asking yourself what on earth all this has to do with real estate?  Well, over the past year or so as the real estate market has begun to change in various degrees in different parts of the county, I’ve seen many times how the media has sensationalized the impact of these changes.  I bet about everyone has seen headlines that include words like “Real Estate Market Crash”, “Bubble Bursting”, etc. 

Certainly there are some areas where downward trending housing activity and prices are having a significant economic impact, but I just haven’t seen that the sky is falling as some would have us believe.  In my observation, the impact of market changes on a particular area is mostly a function of local conditions, not national trends. 

So, perhaps the principle behind Tip O’Neil’s statement regarding the nature of politics could equally be applied to nature of real estate markets and modified to: “All real estate is local.”   

To illustrate, I live and work in Annapolis, Maryland, which is part of the greater Washington, DC metro area.  In our area, market conditions have certainly softened to the benefit of buyers, but there has been nothing like a crash the media fretted about.  Locally there is still high demand for housing and the job market (largely correlated to high government and military spending in this region) is very strong.  So, locally, there are strong enough factors to temper a slowing market.  As a contrast, in certain areas of Florida where much speculative buying seemed to by occurring, there was not a large job base or other supporting infrastructure so local housing supply simply outpaced demand.  Simple economics dictates what happens with those conditions.

So, it’s probably safe to conclude that when assessing the state of a real estate market,  “All real estate is local”...except when it isn’t.  In times of a national disaster, severe recession, interest rate spikes, etc., these broader factors and events may have relatively more impact than usual.  But, once again it will likely be the underlying local market conditions that dictate the severity of national trends on a particular region.

I’m sure there have been in-depth economic studies about the relative impact of local and national conditions on regional real estate markets.  As a rule-of-thumb, though, I bet those conclusions come close to Tip O’Neil’s assessment of politics:  It is all (or at least mostly) local.   

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