Real Estate Matters | Why do property prices move slower than stock prices?

Sam Lee

When asked to point out the difference between investing in property and stocks, many investors remark that the property market is not as volatile as the stock market on a day-to-day basis. Like any other marketplace, the property market is subject to cyclical booms and busts but individual property prices typically won’t oscillate the way stock prices do.

If they are both subject to market forces, why are property prices slower to change?

Firstly, we don’t have a real-time minute-to-minute consensus about what a property is worth. Final sales prices for particular properties are not often disclosed- so even if you know that a transaction was reached on a particular property you can only take your best guess at the sold price based on the listed price. The Macau government (DSEC) takes the aggregated market data and releases reports, but there is always a lag between the market and the information.

Secondly, it’s harder to panic buy or sell properties. If you see the value of your stock portfolio falling, you could (but probably shouldn’t) instantly sell before it falls any further or place a stop-order to sell the stock if it drops below a certain price. With property, even if you panicked today it would take at least a couple of months for the sale to actually happen. This also adds to the time-lag between the data and the market.

Lastly, property prices tend to be sticky. Sometimes you will get strange scenarios where the market values of properties are supposedly falling but you don’t actually see individual property prices dropping. This is often because the owner can’t sell even if they want to since they’d end up owing more on the mortgage than they’d achieve from the sale.

If you’d like to find out more, please feel free to get in touch at [email protected]

Sam Lee is a marketing manager and property consultant at JML Property.  JML was established in 1994 and offers Investment Property & Homes. It specializes in managing properties for owners and investors, and providing attractive and comfortable homes for tenants.

www.JMLProperty.com

[email protected]