Will stock volatility spill into real estate market

houseAfter a few days of steep stock market declines, I, like others, wonder if there will be spill over into the real estate market. Many have forgotten the consequences of the dot-com crash of the late 1990’s, and the brief housing market slowdown that followed in 2000. One thing is certain – there is no consensus from the financial talking heads about the meaning and impact of the equity markets on the economy; some are optimistic, while others caution for rippling effects across other sectors.

MarketWatch’s Steve Goldstein estimated that $1.8 Trillion have been lost in the market over the past week (Households just saw $1.8 trillion in wealth vanish as stocks fall; marketwatch.com, August 24, 2015). And because many rely on their 401k and other equities investments for down payment funds on their home purchase – housing may be impacted. If mortgage rates increase, as anticipated earlier this year, combined with a lack of down payments; home prices could be pressured downward.

In the face of a stock market meltdown, the good news is that the housing market has been gaining momentum, such that existing home sales are as strong as just before the housing decline! According to a National Association of Realtors® (realtor.org) August 20th press release, existing home sales “are at the highest pace since February 2007.” July existing home sales increased 2%; which is the tenth consecutive month showing year-over-year gains. Additionally, median home prices increased 5.6% compared to the same time the previous year.

Pending home sales, a forward looking indicator of homes under contract, have also been strong. An NAR July 29th press release indicated that pending home sales increased 8.2% year-over-year during June; which is the tenth consecutive month for such an increase. Lawrence Yun, NAR Chief Economist, surmised that “Strong price appreciation and an improving economy is finally giving some homeowners the incentive and financial capability to sell and trade up or down…”

Locally, the Greater Capital Area Association of Realtors® (gcaar.com) reported that Montgomery County single family home sales increased 13.3% year-over-year during July; while pending home sales increased 13.2% year-over-year. However, July’s median home sale price for Montgomery County single family homes dropped slightly, from $460,000 to $458,000.

An interesting detail is that although home sales continue to increase, the NAR August 20th release reported that some buyer pools are shrinking; first time home buyers, cash buyers, and individual investor buyers have decreased compared to the same time the previous year. In light of this, some are beginning to question the validity of NAR’s recent existing home sales data reporting. In addition to dwindling home buyer pools, ZeroHedge pointed out a data discrepancy between increased home sales and decreased mortgage applications by (rhetorically) asking the NAR, “where are the buyers coming from… and how long is this sustainable?” (Existing Home Sales Extrapolation Surges To Highest Since Feb 2007; zerohedge.com, August 20, 2015).

ZeroHedge alluded to NAR’s history of predictions of strong home sales and rising home prices through 2006. Of course, the NAR announced in 2011 of about five years worth of home sale data revisions, calling it “re-benchmarking.” According to the NAR, “data-drift” was revealed in existing home sales data compiled from MLS boards; that was due to a number of factors, including: double listings, and inconsistencies.

Copyright © Dan Krell

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