• [Inman Featured] Luxury real estate and the stock market — a surprising discovery

  • The correlation is no temporary trend

    • Equities and high-end real estate have something in common.
    • Buyers' perception of the economy has a significant impact on the luxury real estate market.
    • Several factors can affect the future of luxury real estate.

    A quick increase in equities will affect different sectors of the economy. When stocks do well, other elements respond in a similar manner.

    For example, within the last seven years, the rise in equities led to an increase in sales of luxury real estate (properties with a value of a million dollars or more).

    The correlation between stocks and upscale property sales is not just a passing trend. This connection appears to be a constant in the modern market. Luxury real estate is not immune to the influences of an economy’s financial state or consumer trends.

  • A rise in luxury

    According to CoreLogic, a premier supplier of worldwide data, high-end property usually accounts for 1.2 percent of all residential sales.

    Yet by the stock market’s peak in spring 2015, the percentage of luxury home sales had doubled — and remained that way — for the rest of the year.

    Obviously, confident buyers were a major force behind this renewed activity in luxury real estate. Increased wealth encourages people to feel comfortable about spending more. They believe in their purchasing power.

    A thriving upscale marketplace is tied significantly to buyers’ positive feelings and innate perception of the current economic climate. On the other hand, anxiety about the economy can have the opposite effect.

  • THE CORRELATION BETWEEN STOCKS AND UPSCALE PROPERTY SALES IS NOT JUST A PASSING TREND.
  • Indeed, even anecdotal evidence about a dipping stock market could cause a decrease in buyer enthusiasm. Poor equity performance can lead to a downturn in the volume of luxury home sales.

    Current purchasers, however, have no need for concern about the luxury marketplace. At present, the stock market is displaying strength.

    Therefore, we can expect a rejuvenated luxury real estate sector for the rest of 2016 and into the new year.

  • Luxury market

    Meanwhile, never underestimate the stock market’s effect on the sale of high-end residential properties. The stock market and luxury real estate can advance in unison or also fall behind together in a slowdown.

    For instance, following a stock market peak in May 2015, the S&P Index dropped 10 percent by the middle of February 2016. This S&P decrease was responsible for a 15 percentage point decline in the “million or more” share. The drop amounted to 2.3 percent in November 2015. By January of this year, the decrease was measured at two percent.

  • Luxury developments

    The future of luxury real estate looks promising for investors. A mix of factors, however, can influence the degree of progress and level of profit in the upscale residential market.

    Further development in the luxury sector will depend on variables such as the stock market and high-end inventory.

    A lot can change in six months within the luxury market, but that is part of the draw of this upscale sector. Of course, fluctuating stock markets and the changing financial circumstances of buyers will always affect the high-end category. Yet luxury real estate provides a dynamic market which proves to be a consistent success in the long term.