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The big jobs number is a win for luxury housing
A larger-than-expected employment gain in July could boost the recovery in prices for luxury U.S. homes. Stock market volatility caused a drop in luxury values in the first quarter of this year, but prices recovered slightly in the second quarter, rising 0.8 percent annually, according to Redfin, a real estate brokerage. Redfin defines a home as luxury if it is among the top 5 percent most-expensive homes sold in each city.
The second quarter didn’t start very well for stocks and they plunged after the Brexit vote in June, but the market has rebounded quite significantly since then. Friday’s employment beat could boost the market even more, adding fuel to the recovery in luxury home prices.
The luxury end of the housing market is much more sensitive to stock market moves, as higher net worth home buyers are more invested in equities than the general population. Of course, as with everything in real estate, the sensitivity is local.
“For the most part, the housing market can stomach large swings in the stock market,” said Redfin’s chief economist, Nela Richardson. “But there are markets, like Silicon Valley, that become queasy when the equity market is this volatile. In these areas, homebuyers’ wealth and down payments are more closely tied to stocks. In addition, foreign buyers who normally flock to these cities are also highly sensitive to global volatility.”
Luxury home prices fell 11 percent in San Francisco and 4 percent in Bellevue, Washington, where wealth is more closely tied to tech stocks. Luxury prices in the Hamptons, New York’s swankiest vacation venue, fell 2.3 percent in the second quarter annually, but sales rose by more than 20 percent, according to Jonathan Miller of accounting firm Miller Samuels for the Elliman Report.
The improving jobs picture, however, makes it more likely that the Federal Reserve will raise interest rates, which, while not directly correlated, could push mortgage rates higher. That is a negative for most home buyers, but not necessarily for those on the highest end.