Home Prices and the Stock Market

Homes typically represent a substantial fraction of investor wealth. Are there reliable relationships between U.S. home prices and the U.S. stock market? For example, does a rising stock market stimulate home prices? Do falling home prices point to offsetting liquidation of equity positions. Do homes effectively diversify equity holdings? Measurements are:

• Monthly levels of the non-seasonally adjusted S&P/Case-Shiller U.S. National Home Price Index (Home Price Index) during January 1987 through June 2023 (36.5 years), with release lag about two months.
• Annual median sales prices for existing homes pieced from from RealEstateABC.com [no longer available], National Association of Realtors and Federal Reserve Bank of St. Louis during 1968 through 2022 (55 years).
• Annual median sales prices for new homes during 1963 through 2022 (60 years).

Using these sources and contemporaneous monthly levels of the S&P 500 Index during January 1963 through July 2023, we find that:

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