Stock Market Swings Shake Luxury Buyers

NANCY KEATES  |   September 14, 2015

Recent volatility in the stock market is prompting some luxury would-be home buyers to take a pause. Large swings in the stock market over the last few weeks have reportedly led to some canceled purchases, delayed closings, and requests for price reductions from some high-end home buyers across the country, The Wall Street Journal reports. Read more: 'Black Monday' Rattles Housing Market Also under the umbrella of growing financial uncertainty, the Federal Reserve has been increasing its signals to raise interest rates before the end of the year, which will increase borrowing costs for a mortgage. "It's been a stressful few weeks. The moment the U.S. stock market has one little blip, everyone says, 'Oh, my god, the world is falling apart,'" says Ryan Serhant, a broker with Nest Seekers International in New York. Serhant told The Wall Street Journal that his brokerage lost about six buyers in the $5 million range recently due to current economic volatility with the stock market. The S&P 500 plunged 6.26 percent last month.® economists recently analyzed high-end housing data from October of 2008 and August of 2011, where the S&P 500 lost more than 10 percent, to see the effect back then on home sales. In 2008, home prices in the luxury market – the top 5 percent of the local market – fell 13.9 percent six months after the October plunge in the stock market. In 2011, luxury prices fell 0.8 percent six months following the August drop. Jonathan Smoke, chief economist for®, says that the current economic conditions are more similar to 2011 than in 2008 – in 2008 the economy had been in the midst of the Great Recession. Smoke says that luxury real estate will "be in a better position for recovery following the correction." But in a short-term outlook, the drop in stock portfolios will likely chip away at some home buyers' house funds. In 2014, 21 percent of home buyers reported using proceeds from stocks or a bond sale or borrowed against their retirement accounts in order to fund some of their home purchase, according to data from the National Association of REALTORS®.

Source: The Wall Street Journal