A recent study conducted by Trulia shows that while Democratic- and Republican-leaning U.S. markets were affected similarly by the housing crisis, the most pressing current issues of the housing industry seem to be more severely affecting Democratic-leaning metros.
Based on the 2012 presidential vote, Trulia categorized the largest 100 metros in the U.S. as either red or blue. The Republican candidate, Mitt Romney, received more votes than the Democratic candidate, Barack Obama, in 32 major metros. In 40 markets, termed "light blue," Obama beat Romney by less than 20 percentage points. Trulia termed 28 markets to be "dark blue," meaning Obama's margin of victory was more than 20 percent in those markets.
Trulia found there was not a significant difference in price declines between red markets and blue markets following the housing bust in 2008, with peak-to-trough pricing average 16 percent in red markets, 25 percent in dark blue markets, and 26 percent in light blue markets.
Likewise, according to Trulia, the recent recovery has been similar in both red and blue markets. Home prices were up 7 percent year-over-year in red markets in September 2014, while dark blue and light blue markets saw gains of 6.3 percent and 6.2 percent, respectively. Trulia also reported that there was not a huge gap between red and blue markets regarding the number of homes in foreclosure, another measure of housing recovery.
The fundamental differences between red and blue markets occurred in housing affordability, Trulia reported. In September, the 10 reddest markets all had a median asking price of lower than $130 per square foot, while nine of the 10 bluest markets reported a median asking price of higher than $130 per square foot. The correlation between price-per-square-foot and 2012 presidential vote margin was 63 percent, which was "statistically significant," according to Trulia. The only expensive red market as far as median asking price was Orange County, California, at $363 per square foot, and there was a huge dropoff to second on the most expensive list in red markets, which was Northport-Bradenton-Sarasota, Florida, at $150 per square foot.
While Trulia reported that households in blue markets tend to have higher incomes than those in red markets, the higher incomes could not offset the higher home prices in those blue markets. Trulia's middle-class affordability measure, which measures the share of homes per sale that a certain median-income household can afford, is lower in blue markets. Also, according to Trulia, blue markets have greater income inequality and lower homeownership than red markets.
"Because blue markets are less affordable, have lower homeownership, and have greater income inequality, political leaders in Democratic-leaning and Republican-leaning metros may push for different policies," said Jed Kolko, chief economist at Trulia. "Furthermore, these local differences in home prices mean that some national housing policies favor red markets and others blue markets. For instance, the current system of conforming loan limits benefits red markets more because homes in those markets are likelier to fall within local loan limits."
Due to higher home prices and more residents in higher tax brackets, however, the mortgage interest deduction currently benefits blue markets more, Trulia reported. Kolko concludes that the differences between red and blue markets could potentially make it tougher to reform long-standing housing policies.