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NAR: Stock Market Chaos Hurts SoCal Home Prices
NAR: Stock Market Chaos Hurts SoCal Home Prices
Tariffs are affecting buyers’ down payments.
A 2024 NAR survey found that 9% of all owners used a retirement account to buy a home.
“Younger generations, including Gen Z (18-27) and millennials (28-44), were more likely to tap into retirement savings, with 16% of Gen Z and 12% of millennials doing so, compared to 7% of Generation X (45-59) and 8% of baby boomers (60-78)”.
The Federal Reserve hits the pause button on interest rate cuts
California real estate fans should keep a keen eye on Wall Street’s wild gyrations. Share prices worldwide have been pummeled recently by economic doubts raised by the Trump administration’s tough trade talk.
And while short-term stock volatility is not always tied to business fundamentals, longer-run dips have a habit of signaling economic “roadblocks” ahead.
And real estate fans should not forget that weak economies are rarely good news for California’s housing market. Statewide prices tend to underperform following stock market downturns.
To see how the plot twists on Wall Street interact with real estate valuations,
To put these two financial benchmarks on a level playing field through a somewhat subdued lens, we pondered year-over-year price changes for the 196 quarters.
Just so you know, the S&P 500 has averaged 10.2% annual gains since 1975 compared with a 7% appreciation rate of California home values, according to FHFA measurements.
That’s the No. 1 home-price gain among the states.
Down years are rare; stocks and home prices had the same winning percentage: they rose 76% of the 12-month periods studied. It’s not just the economic hints the stock market offers.
There’s also the “wealth effect.”
When consumers’ stock holdings increase, they feel more confident about their overall finances and are more willing to spend. A flush portfolio can also help provide the crazy cash required for a California home buyer’s down payment.
Ups vs. Downs
How does California housing react after the stock market loses money? Consider the S&P 500’s downturn of over 12 months in the past half century.
The following year, California home prices increased by 73%, a slightly lower gain than the average.
The annual avg. price increase was 6.6% a year —modestly below the norm.
Conversely, when the S&P 500 rose over 12 months, these stock-gain periods were followed by California home prices increasing 77% of the time in the next year, a winning percentage a touch above par. The 7.1% average annual increase was slightly above the norm.
Busts or Booms?
What real estate fans should carefully track are Wall Street’s extremes. Contemplate when stocks drop 10% or more over 12 months. Such sharp declines occurred 12% of the time in the past half century.
California home prices increased a subpar 71% of the time after these stock routs, with below-average 6.7% annual increases in the following year.
Now, consider what happens when stocks are in a bull market mode. It’s eye-catching what happens after 20%-plus gains on Wall Street.
These huge one-year upswings happened in 26% of the 12-month periods since 1975. Following a boom year, California home prices grew in value 80% of the time, with 9% average annual increases.
Bottom Line
It’s hard to remember New Year’s Day, but the S&P 500 ended 2024 with a lofty 23% gain. These large stock surges are typically friendly to California home prices.
Yet, according to the latest FHFA index update, California home prices were up only 5% at year-end 2024.
So, house prices were soft as 2025 began.
On Wall Street, stock gains had thinned to 7% a year by the end of March, and the S&P 500 fell below its year-ago price this month.
What if the current stock market turmoil persists for an extended period, resulting in significant losses? History suggests that California home-price gains will likely slow, with the odds of price losses on the rise.
Postscript
Wall Street’s ups and downs are more volatile than California’s home values.
Since 1975, the S&P 500’s biggest one-year gain was the 54% jump in the 12 months ending in March 2021, the core of the economic rebound from the early fears of the pandemic.
On the downside, the S&P 500’s worst 12 months were the 40% collapse that ended in March 2009, at the heart of the Great Recession’s global financial rout. That’s a 94-point spread between Wall Street’s best and worst.
In the same half century, the California FHFA index’s largest 12-month advance was a 29% surge through September 2004. That was the prime time for the easy-money, subprime lending era.
Those days ended badly, with California housing prices diving 23% through September 2008, as the real estate bubble burst into the Great Recession.
That 52-point gap is the 10th-largest among the states but is also 45% smaller than the S&P 500’s spread.
This simple math aligns with price volatility measured by the geeky standard deviation statistic. According to this calculation, the California home index’s twists and turns are the third-worst on a national scorecard.
But housing’s bounces are 40% smoother than the S&P 500’s gyrations.
I (Lasner) want to point out that stockholders are rewarded for living through the sharper ups and downs.
Take 1975’s California median-priced home, which cost $42,000. Imagine if it appreciated at the FHFA housing index’s 7% average gains over the past half century.
The gains would lift the ’75 median to $1.1 million today. Conversely, using the S&P 500’s 10.2% annual gain, that same 1975 home would be worth $4.8 million.
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