CoreLogic Chief Economist Mark
Fleming suggests that an examination of housing's one-percenters might be as valuable
an analysis as a glance at that segment's income and/or wealth distribution. Historically, at least for the last two
decades, homes that have sold for over $1 million have made up 1 percent of
sales, a useful proxy.
The share remained below 1 percent
through most of 2003 than began to move, reaching as high as 1.8 percent when
prices peaked in mid-2006. But even as
prices began to deflate, the share of upper-priced homes continued to rise,
reaching 2.2 percent at the peak in June 2007 - more than twice the share 5
years earlier. And even as prices
suffered in general, the market share of million dollar homes held at an
average of 2 percent through August 2008; twice the traditional share.
The collapse in high-end real estate
market share coincided with the collapse of the financial markets themselves
starting in September 2008. By February
2009 high end sales had retreated back to 1 percent, the same as in December
2003. Then financial markets stabilized
and sales came back, accounting for 1.5 percent in the last part of 2009. Fleming
says that "over the next three years as the S&P 500 steadily rose and
eventually hit all-time highs, the million dollar sales share also rose, reaching
2 percent by mid-2913 and remaining at that level since then".
This tie between housing prices and
the stock market was clearly no coincidence.
Fleming says several studies document the wealth effects of financial
and real estate markets on consumption and they typically conclude that housing-wealth
affects are much larger than financial wealth-effects, primarily because more
people own houses than own stocks. "But
for real estate's 1 percent," he says, "the stock market is the barometer of
the wealthy's consumer confidence." This is clear in that sales share and the
S&P are so tightly correlated and the S&P 500 index serves as an
excellent two-month leading indicator of sales.
While the 500 dipped in the last few
weeks of January 2014, it recovered its December levels in February. One can expect $1 million home sales to remain
strong as long as the stock market remains high CoreLogic's economist says.
But that is the one-percent. How is the rest of America doing? Many lower price segments are actually
enjoying healthy sales growth, Fleming says, with the fastest appreciation in
the $650-$950,000 category which was up 33 percent from a year earlier. The next grouping, $350,000 to $650,000 is up
26 percent but the $150,000 to $300,000 rose only 12 percent year over year,
and sales below $150,000 are actually contracting as prices increase and
investor, cash, and REO sales decline.
The relationship between consumer
confidence and spending is well established, he says, but it doesn't always
affect all market segments equally. The
one-percenters have benefited from financial market gains and the direction of
other financial markets this year will determine how many homes the
one-percenters purchase in 2014.