Though temporarily put out of commission by a mild form of the Martian Death Flu that recently afflicted Kris Berg — and perhaps an overdose of Thanksgiving Tryptophan, not to mention a stronger-than-expected Q4 — I came to life upon seeing Mike Simonsen’s insightful post on the relationship between Palo Alto home prices and the NASDAQ.
I thought I’d take myself up my own challenge (posted on Mike’s blog) of seeing how well that pattern fits going further back. The result? Broad-stroke parallels useful for thinking about large trends, but (alas) no neat regression-based formula that would help you to predict, say, next month’s median prices. (Of course, if I had found something like that, trust me, I would not be posting it on my blog! I’d run as fast as my legs could carry me over to Sand Hill Road and hit up some VC’s for a few billion dollars to buy and sell Palo Alto real estate!)
Here’s the chart comparing Palo Alto median home prices with the NASDAQ; both numbers are indexed to 100 = February 1997.
The key observation seems to be that, very roughly speaking, NASDAQ’s movements are followed several months later by corresponding movements of about half the magnitude in Palo Alto prices. In other words, when the NASDAQ starts trending upwards, Palo Alto prices start doing the same a few months later. If the NASDAQ’s climb ends 50% higher, Palo Alto’s ends about 25% higher. Observe: (Numbers refer to chart below.)
- 1 to 2 The NASDAQ , as we’ll all recall, had a glorious run, peaking in February 2000 at a level more than triple its February 1997 level; Palo Alto prices also had a glorious run during that time, though the peak took place a few months later and was “only” 2.5X higher than in February 1997.
- 2 to 3 The NASDAQ’s initial plunge from February 2000 to May 2000 shaved roughly 30% off its value; in response, Palo Alto prices dipped 13% from June to September 2000.
- 3 to 4 The NASDAQ’s brief rally from May to August 2000 was followed by a brief home price rally from September to December of the same year.
- 4 to 5 Following its brief rally, the NASDAQ went into free-fall from August 2000 through September 2001, during which it lost over 60%. Palo Alto’s corresponding price drop started a good 6 months later and ended in December 2001 30% lower.
- 5 to 6 The NASDAQ had another brief rally through November 2001; Palo Alto waited till December and climbed for a good half year.
- 6 to 7 Unable to sustain itself, the NASDAQ dropped 40% from January to September of 2002; Palo Alto prices fell 18% from July 2002 through January 2003.
- 7 to 8 With a few brief interruptions, the NASDAQ has been marching slowly upward from September 2002 through now, slightly more than doubling during that time. From February 2003 through now, Palo Alto prices have climbed by about 50%.
Tags: For buyers, For sellers, Palo Alto, Real estate, Real estate data
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