The Ever Elusive Stock-Market-To-Housing-Market Correlation
Posted by Jonathan J. Miller -Monday, April 23, 2012, 11:04 PM
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Recently I was contact by The Real Deal Magazine to take a look at the correlation between the stock market performance and the housing market. I personally don’t believe it and I have written about correlation and how silly it can get.
The thinking goes like this:
The Dow Jones Industrial Average rises, the housing market rises = correlation = a housing market indicator, but…
“Twenty-five percent of New York City wages come from financial services,” Miller said. “It’s part of the fiber of being here and so there’s always been a propensity to correlate the Dow Jones industrial average with housing here. I don’t ascribe to that belief. Housing is not a stock. [Rather,] if you have a robust and actively traded market, in theory, employment is more likely to be stable, which consummates sales transactions.”
Actually, Manhattan’s market share was 37% in 2009 after reaching 44% in 2008.
For years I’ve been posting a DJIA versus Manhattan inflation-adjusted sales price chart and there wasn’t much correlation – I also tried a non-inflation version to no avail. But the reporter’s call inspired me to revisit the topic and compare DJIA against Manhattan sales and the patterns were actually pretty similar (see top chart).
When I think about the housing rebound in the dark days just after the Lehman tipping point and how stock-market orientated we are in Manhattan, the only thing that seemed to push consumers back into the market was the roar of the stock market in the first quarter of 2009. This comparison against sales (transactions) seems show the same trend. While I’m still not on the correlation bandwagon, the 20-year trend is quite compelling.
Not a fan of correlation either. Regional economy with local housing – focus on the how far most of us roam in a week. When our daily commute pattern is examined, this really starts to illustrate the linkages. I always felt housing was more a function of employment security than the much more forward looking equity markets. As appraisers we have to look at other factors – distress sales, shadow inventory, cash buyers, credit conditions and inventories….