Housing cycles are supposed to be characterized by long trend intervals — long periods of ups and downs. Today our markets are behaving much like the stock market — one week up and the next week down. My guess is that depending on the news home buyers ingest during the week, they tend to react much like investors in other asset classes. This makes it more challenging to predict where the market is headed.
As a kid I grew up next to railroad tracks, and one of my joys (to the chagrin of my parents) was hopping onto slow-moving trains. In order to know when trains were coming we would put our ears on the tracks and see if we could detect the faintest of sounds to know the train was on its way. It worked for the trains; let’s see if it can work for the housing market.
I delayed finishing this report over the weekend because it was time to go to the Super Bowl party. I did this deliberately so I could let the New England Patriots and New York Giants aid us in determining which way this market is moving. The reason is that the equity markets have had an uncanny direct correlation to the housing market or visa versa for the past 11-plus years. They are tied at the hip. Whoever wins the Super Bowl, meaning which conference and which team, we can look at past Super Bowls and see how the market has performed over the ensuing year to determine which way the wind is blowing.
Going all the way back to 1967 and measuring return, it has been more advantageous when the NFC wins. The S&P 500 has been positive more often than negative (86 percent versus 63 percent of the time) with above-average market performance in the Super Bowl year (NFC wins, +16.4 percent vs. AFC wins, +7.1 percent). Since the Giants won, we have a good thing going.
Now from a team perspective, when the Giants have won, the results have been more favorable than when the Patriots have won. In the Giants’ two previous wins (1987 and 1991), the S&P rallied 17.8 percent on average. Although, when the Patriots won (2002, 2004 and 2005) the market was -2.1 percent on average.
More impressive is when the Patriots lost the Super Bowl in 1986, and in 1997 the markets rallied 25.8 percent on average. Now we are talking. It is a good thing the Patriots lost last night because the last time we had a team go undefeated (the Miami Dolphins in the 1973 Super Bowl) it preceded the 1973-74 economic recession where the S&P 500 dropped 14.5 percent.
Finally, the two times that the Giants won the Super Bowl economic conditions were similar to our current situation. The 1987 win preceded the October stock market crash, and the 1991 victory was during the last major housing recession. The good news is that in both cases the markets moved higher (1987, +5.1 percent; 1991, +30.6 percent).*
Thank you Eli Manning and the N.Y. Giants’ defense team. Your win is the best news we have had since last summer. This is even more encouraging since the week of Jan. 21-27 saw home sales slow once again. The best thing that could be said is that open-house attendance was still brisk.
Now from what I have heard about this past week from agents (which will be discussed in my next report) is a possible pick-up in sales activity, which might have been a precursor to the Giants win.
Go Giants — Super Bowl champions! Now I wonder what this means for the presidential election.
*Statistics provided by Deutsche Bank
Avram Goldman is president and CEO of Pacific Union GMAC Real Estate, a real estate brokerage company based in the San Francisco Bay Area.
