Should the stock market volatility stop me from buying or selling a house?

Should the stock market volatility stop me from buying or selling a house? A special Market Report from Opes Advisors’ Chief Investment Officer This year’s stock market has been dominating the news and creating anxiety. The current market is, and will continue to be, very volatile in this first quarter and into the beginning of Q2. The wide swings and varying interpretations of what is causing the swings will continue. The market has had a very good run-up over the past five years, and this year will be the beginning of revaluing in areas where values have become too high. However, we do not see any systemic risk or concerns for the year. Despite the challenging stock market, as of today, we do not see this leading to a big drop in Bay Area real estate. Here are the reasons grounding our expectation: US and Bay Area employment trends are good: There is always turnover and the creative destruction inherent within capitalism, but overall employment is still rising and our workers are in demand. Change in compensation away from Stock Options (as was the case in 1999-2000) to Restricted Stock Units (RSUs): Many employer compensation plans are only indirectly impacted by declining stock prices. Today, many employees in Silicon Valley receive a large portion of their compensation through restricted stock units rather than options. This means their stock has declined in value, but not disappeared entirely as happens when compensation is options-based. Stock market downside is reacting to short-term questions about oil rather than paying attention to the long-range impact: We are seeing a once-in-a-generation transfer of wealth from oil exporting nations to oil importing nations. In the short-term, Saudi Arabia’s sovereign wealth fund is selling global securities to pay for their immense current deficit, as they aren’t earning enough from oil; this hurts stock markets now. But in the long run, consumers in developed countries and many emerging market countries, like China and India, benefit from low oil prices. More will be spent on things like advanced technical goods designed in Silicon Valley. Interest rates will remain low: While not as important as stock prices for some high-level neighborhoods, continued low interest rates keep home affordability relatively good. Some steam will come off the multiple-buyer real estate market: Companies with high growth expectations that need cash are going to struggle more when the investment markets want to see earnings. Various Bay Area companies that have been valued on how they are going to change the world sometime in the future will either need to be generating good profits now, or their valuations will come down. This will lower the spending power of some potential buyers, and more of those working for start-ups or rapidly growing private companies now have compensation that tends to be in options, so more are subject to a drop in stock prices. Real estate price increases are likely to moderate, and fall more in line with National trends. In the long run, however, people are spending money on goods and services created by companies here in the Bay Area. The two companies fighting it out for the “most valuable company in the world” are Google and Apple, not Exxon or General Electric. And even with the near-term slowdown in VC investment, in the long run, such investment has been dominated by the Bay Area. These are all good supports to the Bay Area housing market. Mark T. Duvall, CFA® Chief Investment Officer Opes Advisors 19330 Stevens Creek Blvd Cupertino, CA 95014 David Nolen Swaim Owner Tam Realty Inc DRE-1070789 609 San Anselmo Ave San Anselmo CA 94960 415-710-5504 www.tamrealty.com

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