Stock market Swoon pulls the rug back from luxury home sales

The June liquidation did some work on them.

By Wolf Richter for WOLF STREET.

Manhattan luxury real estate versus the stock market’s downward spiral in June: In the week of June 19, only 12 sales contracts were signed for condos, co-ops and townhouses with prices Asked for $4 million and above, the worst week since the week of Dec. 28, 2020 (with 10 contracts), according to today’s weekly report from Olshan Realty.

The number of contracts represented approximately one-third of the medium number of contracts signed in the previous 52 weeks, and down 70% compared to the same week in June last year (41 sales).

“This anemic performance coincided with the S&P 500 Index falling 5.8%, its worst week since March 2020. The S&P has fallen 11 of the past 12 weeks,” Olshan’s report said.

There have been other reports of this phenomenon – but not as real-time and as brutal: what cuts the rug under luxury real estate isn’t necessarily soaring mortgage rates – although that could play a role too. a role in massively increasing the costs of owning luxury real estate – but falling stock prices throwing into uncertainty all sorts of previously taken-for-granted wealth equations and feelings.

Analysis by Redfin, published earlier in June, found that sales of luxury homes – priced in the top 5% of the local market – in the three-month period to April in United States had fallen about 18% year over year – a much smaller drop than what is happening in Manhattan now. But the Redfin report only covered data up to April, and stocks have fallen significantly since then.

“There have only been two instances over the past decade where there have been larger declines: the three months ending June 30, 2020 (-23.6%) and the three months ending June 31, 2020. May 2020 (-21.6%),” the Redfin report said.

The Redfin report blamed the “cooling” of the luxury housing market on “soaring interest rates, a lukewarm stock market, inflation and economic certainty”.

The phrase “tepid stock market” to describe the situation the stock market has been in since January should earn Redfin the understatement of the year award.

And yet, luxury sales in those three months to April cited in the Redfin report had yet to be affected by the recent stock sell-off, including last week’s sharp drop.

“The year-over-year cooling also reflects the market’s return to earth for high-end homes after an almost 80% increase in sales a year ago,” Redfin said.

Sales of non-luxury houses had fallen just 5.4% in the same three-month period to April, according to the Redfin report.

But that was before the recent spike in mortgage rates to 6%. In the three months to April covered by the Redfin report, the average 30-year fixed mortgage rate fell from around 3.7% to just over 5%. But in June, the 30-year fixed mortgage rate rose above 6%, adding another layer of complications for potential buyers.

But unlike the Redfin report, Olshan’s data today — the 70% year-over-year drop in the number of contracts for the sale of homes priced at $4 million and above in Manhattan — have been affected by at least some of the stock market’s 11% slump in June so far.

Stock market sell-offs, if prolonged, become a little disconcerting for people who have a lot at stake in the stock market, especially if the momentum points to further revaluation of assets following a long and hard tightening cycle. from the Fed, which is now belatedly tackling runaway inflation.

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