Linking the Stock Market and Condo Sales

While new condo sales have followed the general path of many economic variables over the past decade with various degrees of correlation, their close relationship to the stock market is attention worthy.

Shawn Hildebrand, researcher, senior vice president of Urbanation Inc., and former senior market analyst at Canada Mortgage and Housing Corp, has studied Toronto's condo market and found an ever-growing correlation between stock market values and condo sales. Hildebrand has noted that this correlation is higher than the one between condo sales and real estate investment trust indices.

"Over the past five years in particular, new condo sales have shown a strengthening, albeit still moderate, correlation to stock market values with one quarter lag," he writes. "While this may seem counter intuitive 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 assemble in subsequent quarters and sales often overcompensate when catching up, he explains.

"We can tell from recent trends that the stock market now appears to be one of the many indicators to look at when assessing condo sales trends. Whether the stock market 'treads water' or experiences an outright rout, repercussions for the new condo market can be expected."