High-tech stock gains boost housing values
Hot Silicon Valley sees effect, not other areas
Monday, September 11, 2000
Inman News Features
The long-held view that stock values influence home prices only holds true in the hotbed
of technology, the San Francisco Bay Area, but not in other less dense tech areas,
according to a new study by the Federal Reserve Bank of San Francisco.
Real estate markets in California boomed during the late 1990s with the median house
price in the Bay Area at $466,630--up 23% from the year before and up 56% since
January 1998.
Much of the increase in the Bay Area median price comes from appreciation in Silicon
Valley. The median house price in Santa Clara County is $554,550--which is 35% higher
than the year before and 70% higher than in January 1998. The Los Angeles median
house price peaked at $212,010 in April of this year. As of June, it stood at
$197,640--down 4% from the year before, but 15% higher than the median price in
January 1998.
"The similarities between the patterns of stock market wealth and house prices lead one to
suspect that there could be a relationship but the analysis points to a high-tech wealth
effect in the Bay Area" but not necessarily in other parts of California such as Los Angeles
and San Diego, according to the study dubbed Tech Stocks and House Prices in
California.
In the Bay Area, a 10% increase in the market valuation of local high-tech firms leads to
about a 1% to 2% increase in house prices over two years. Interestingly, local high-tech
stock price changes improve the forecasts of house price changes even when the S&P
500 lags. "This suggests that there may be a distinct wealth effect channel from the local
high-tech sector affecting house prices in the Bay Area," concludes the study.
However, it also showed that the relationship between high-tech stock prices and house
prices is not evident in the Los Angeles and San Diego areas. |
