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Rising stock market and a low VIX will be good for Luxury Vermont real estate

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With the SP500 and Dow approaching all-time highs, I thought it was a good time to revisit my favorite indicator of investor confidence, the VIX.  The VIX measures the forecasted volatility that is priced into options on the broad stock market.  What I like about the VIX is that it directly measures embedded vol in live/actual market prices of traded instruments, not some "theoretical" measurement, using statistical estimations based on past data to project risk forward.  When investors price out options to buy or sell the market in the next 30-60 days, the key part of that pricing is how volatile they think the market will be.  If they think the market will be volatile, then these VIX options get priced with a very high expected near-term volatility.  So when we are in a crisis, or people think things near-term for the stock market are likely to be more volatile, then the VIX goes up.  When investors are more confident that near-term the market is likely to be somewhat stable and unlikely to make a sharp move up or down, then the VIX goes down.  So a low VIX indicates that the "smart money investors" on "Wall Street" are feeling pretty confident about things.

So - you might be asking - what does this have to do with luxury vermont real estate?  Pretty simple: buyers of luxury homes are more likely to buy if they think their wealth is steady (safe) but also rising, and therefore are more likely to buy a luxury property or estate in Vermont or wherever else they are looking to have a second or retirement home.  While many of them do not even know about the VIX, they do know the market - and their wealth - has been steadily going back up, they know there have not been any big scary sell-offs in a while, and they do talk to their "smart money advisors" in New York, Boston, etc, who should be well aware of the VIX.  I would add to this that year-end layoffs were done as usual in December, and everyone still standing just had their bonuses paid in February.

A combination of near-record highs on the stock market, combined with a low VIX is a good harbinger for an improving climate for luxury homes in VT.  The economy is on the mend, markets are forecasting that, so in our view, it is not a question of IF high end buying will pick up, but a matter of when.

If you are looking to buy or sell luxury vermont real estate, give us a call.

- John Snyder


VIX 2013 03 05



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