Glowing Jobs Report May Lift Luxury Housing

August 8, 2016

Big employment gains in July could offer some relief in the luxury housing market, which has been hampered lately by stock market volatility.

The luxury market is particularly affected by stock market uncertainty, since higher net worth buyers tend to have more invested in equities than the general population. Prices recovered slightly in the second quarter, but rose only modestly by 0.8 percent annually.

“For the most part, the housing market can stomach large swings in the stock market,” says Nela Richardson, Redfin’s chief economist. “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.”

In San Francisco, luxury home prices have dropped 11 percent, while they dropped by 4 percent in Bellevue, Wash. Also, in the Hamptons, N.Y., luxury prices dropped 2.3 percent in the second quarter annually, according to Jonathan Miller of Miller Samuels.

Economists say the better-than-expected employment report released this past Friday could provide more fuel to a recovery in luxury home prices.

"Luxury buyers aren't motivated by mortgage rates,” Richardson says. “As evidence, luxury home prices were sluggish in the second quarter even though rates were near rock bottom levels. Even if Friday's jobs report makes a Fed rate hike more likely, it won't move the needle for high-end buyers. What matters to luxury buyers is a solid investment opportunity that pays off down the road. If the jobs numbers are a harbinger of a healthy economy in Q3, we could see a pickup in the luxury market that rates alone couldn't pull off by themselves."

Source: “The Big Jobs Number Is a Win for Luxury Housing,” CNBC (Aug. 5, 2016)