What is the Stock Market Telling Us About the Real Estate Market?

Before I got into the Boston real estate market, I was a stock trader for about 5 years. The stock market taught me a lot of incredible exciting and painful lessons learned the hard way, and learn I did, but that’s a story for another day Boston Market.

What I’d like to point out today is a pattern to recessions and how to spot the recovery. The biggest billboard of a heads up is the recent traction in the stock market. The market has risen 50 percent since the 4th quarter of 2008 and the Dow just went over 10,000 again after going all the way down to 6400 last year.

These higher valuations of stocks have usually signaled that a recovery in the economy is on the way in 6 months. Starting when the market makes a move significantly higher (August/September 09) that would put us at a positive GDP by the 2nd quarter of 2010. Stock prices have been a 6 month leading indicator of recovery in every consumer lead recession that I’ve seen. I’m 60 years old so that’s 5 recessions that have affected me. On the other hand don’t pay any attention to the unemployment rate as it doesn’t tell us anything useful as it is a lagging indicator and is the last statistic to recover.

The point I’m making with all this is that if this pattern repeats itself (and that’s not at all definite) it would mean that Boston real estate prices will firm up in the spring and move higher. Housing prices rise when the stock market is going up. Buyers come out to see properties when the stock market is going up. I didn’t see a lot of buyers when the Dow was at 6400!

Boston Homes are always at least 10 percent more expensive in the Spring/Summer months than in the Autumn/Winter months anyway so if the pattern repeats, the real estate market in the Boston area will be reaching its bottom in November/December 2009 and there may be no looking back from there. January 2010 marks the beginning of the spring market in Boston Real Estate. This, combined with an expanding economy, is likely to bolster the already unshakable resolve the sellers have to hold prices higher.

Please don’t take this as a market prediction, the stock market thoroughly cured me of that hubris. I’m just pointing out a pattern. Patterns change of course, if they didn’t we would all be rich. This particular pattern occurs because buyers see the stock market go up and it calms and reassures them enough to pull the trigger. If you asked most buyers, I doubt they would be consciously studying the movements of the Dow and the Nasdaq, however on a deep level they know the economy is expanding and that leads to confidence.

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