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Car Sales and Home Sales: Is There a Match?

Posted March 6, 2010 by Matthew Denton

Blog asks a question that everyone wants to find out.

In their blog, Jonathan Lasner asks, “Will auto sales signal housing recovery?” To which he follows up, “They’re nowhere as pricey as a home, but auto sales figures tell us how confident consumers are feeling.”

I’ve also been tinkering with the same idea for the past year since the Motor City started its collapse. There was so much buzz over the issue that news reports also came with housing problems (Remember how most residents fled before selling their homes for a little over a grand?) But one article supports the idea, except that it should be the other way around: home sales can affect car sales.

According to CWN Research’s Art Spinella , “Lower equity translates into an inability to borrow against the house to buy a car. And not surprisingly, the majority of states where home equity loans are used extensively for new-car acquisitions have suffered a larger proportion of sales losses versus 2006. For almost two years it has become apparent that unless housing prices rebound “some states will continue to suffer serious new-car sales deterioration.”

Spinella is correct. Lasner’s question can be answered in a reverse analogy, “Housing recovery will signal auto sales”. I support my theory on the following explanations. First, most homeowners’ purchases of new vehicles come from refinancing their properties. However, if the housing market’s values take a plunge, home equity is also affected. This means that there’d be few mortgages available. Homeowners would find it difficult to finance their probable car purchase.

Second, when the general economy is good, most industries are in good shape too especially the real estate market. Prior to the Detroit downfall, there was high demand for cars since auto industry workers also received large discounts when purchasing General Motors or Ford vehicles. Most probably, with the money that they loaned, they can now finance their car.

Third, when housing starts are high, many builders who still don’t have trucks can find it convenient to purchase one. There goes your demand for pick up trucks shooting high.

Real estate appreciation can support the needed strength of the car market. Likewise, any weakness in the property market can signal a direct relationship with the latter.

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