The stock market can be an indicator of many things, but can it tell us something about condo sales? Researcher Shaun Hildebrand thinks it might.
He’s a senior vice-president at Urbanation Inc., which studies Toronto’s condo market, and he has found a loose correlation between stock market values and condo sales in Toronto. And he points out that the correlation has grown stronger in recent years.
“While new condo sales have followed the general path of many economic variables over the past 10 years with various degrees of correlation, their fairly close relationship to the stock market is worth paying at least some attention to,” he writes in a soon-to-be-published note, which also calls for more research on the topic.
The correlation between condo sales and the broad stock market (the S&P/TSX Composite index) is higher than for instance the correlation between condo sales and real estate investment trust indices, he says.
Condo sales vs. the S&P/TSX
SOURCE: Urbanation Inc.; Statistics Canada
“Over the past five years in particular, new condo sales have shown a strengthening, albeit still moderate, correlation to stock market values with a one quarter lag,” writes Mr. Hildebrand who is a former senior market analyst at Canada Mortgage and Housing Corp. “While this may seem counterintuitive as condo investing is often thought of as a substitute for financial investments, it can suggest that condo buyers use financial gains to invest in condos, or buy units because they feel wealthier thanks to their rising financial portfolio. The same relationship occurs on the downside, where buyers feel more cautious as financial values slide.”
When new condo sales volumes and stock market growth do pull away from each other, they tend to converge in subsequent quarters and sales often overcompensate when catching up, he adds.
Mr. Hildebrand notes that the S&P/TSX Composite Index closed the second quarter at its highest level ever, and its value at the end of the third week of September was 12 per cent higher than at the start of the year. Sales of new condos in the Toronto area rebounded along with the rise in stocks. But the market retreated sharply last week before heading back up somewhat on Friday.
“We can tell from recent trends that the stock market now appears to be one of many indicators to look at when assessing condo sales trends,” Mr. Hildebrand writes. “Whether the stock market ‘treads water’ or experiences an outright rout, repercussions for the new condo market can be expected.”
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- Updated April 25 4:33 PM EDT. Delayed by at least 15 minutes.