Yes, California, Wall Street gyrations are wilder than our home prices

The recent wild ups and downs of stock prices may offer some comfort to those who prefer the somewhat more serene history of California home values.

To see how the plot twists on Wall Street compare with swings in real estate, my trusty spreadsheet looked at histories of stocks (the Standard & Poor’s 500 index) and California home prices (the Federal Housing Finance Agency’s index) going back to 1975. To put these two financial benchmarks on a level playing field through a somewhat subdued lens, year-over-year price changes for the 196 quarters in the period were pondered.

Since 1975, the S&P 500’s biggest one-year gain was the 54% jump in the 12 months ended in March 2021, the core of the economic rebound from the early fears of the pandemic.

To the downside, the S&P 500’s worst 12 months was the 40% collapse ending in March 2009, the heart of the Great Recession’s global financial rout.

That’s a 94-point spread between Wall Street’s best and worst.

Next, ponder California’s Main Street – its sometimes erratic home prices.

In the same half-century, the state FHFA index’s largest 12-month advance was a 29% surge through September 2004. That was the prime time for the easy-money, subprime lending era.

Those days ended badly, with California housing prices diving 23% through September 2008, as the real estate bubble burst into the Great Recession.

That 52-point gap is the 10th-largest among the states, but it’s also 45% smaller than the S&P 500’s spread.

This simple math aligns with price volatility as measured by the geeky statistic called standard deviation. By this math, the California home index’s twists and turns are the third-wildest on a national scorecard.

But these bounces are 40% smoother than the S&P 500’s gyrations.

I want to point out, though, that stockholders are rewarded for living through the sharper ups and downs.

Take 1975’s California median-priced home, which cost $42,000. Imagine if it appreciated at the FHFA housing index’s 7% average gains over the past half-century. The gains would boost the 1975 median to $1.1 million today.

Conversely, using the S&P 500’s 10.2% annual gain, that same 1975 home would be worth $4.8 million.

Jonathan Lansner is business columnist for the Southern California News Group. He can be reached at jlansner@scng.com