To begin this post, we will use the town of Greenwich, Connecticut, as our case study.


Before the 2008/2009 crisis, Greenwich had one of the hottest residential real estate markets in the country.   


  • In 2007, the peak, the median sale price was $2,175,000
  • At this time, the S&P 500 index was over 1500


  • This fell to $1,690,000 at the bottom of the equity crash in 2009
  • S&P 500 briefly fell below 700


  • By 2015, the median sale price barely climbed to $1,871,000
  • S&P 500 already over 2,000


    • $3 million to $4 million: 17 months of supply which has risen 38% over the past year
    • $4 million to $5 million: 22 months of supply, +35% over the past year
    • $5 million to $10 million: 48 months of supply, +108% over the past year
    • Greater than $10 million: 128 months of supply(over TEN YEARS), +63% over the past year

Worst of Both:  No Flows From Equity Upside & Increasing Number of SELLERS

Greenwich luxury real estate is NOT receiving the windfall from the new highs in equity markets.  Unlike Manhattan, which is building huge, new massive sky-scrapers, Greenwich residents are unable to move their properties, let alone justify building new ones at valuations that reconcile with current replacement values.

Equity Bear Market Will Force Sellers to Cut Prices 

The owners of these luxury homes in Greenwich have most of their wealth either in equities directly or in assets correlated to equity markets.

This means that while equities remain high, owners are willing to keep the hope that they can sell their homes, and so they remain willing to pay the maintenance and property taxes on their overvalued homes languishing on the market.

When equities eventually enter a bear market, the sellers will abandon this hope and cut prices to one that reflects true demand.

Problem:  The Sellers Will Cut Prices at the Same Time 

The luxury residential real estate market in Greenwich is guaranteed to crash, because the timing of the response of the sellers will be simultaneous:  when equity market sentiment becomes bearish, the sellers know that they must compete for buyers with such huge inventories of luxury real estate for sale.  The sellers will rush to cut the asking prices in order to snatch whatever buyers they can find.

The result will be a massive crash in Greenwich luxury real estate.

Greenwich’s All Over the US

Anywhere where the luxury real estate market is not making new highs in parallel with equities is susceptible to this seller capitulation effect once equities enter a bear market.

Political Consequences

The collapse of luxury real estate in “non-bubble” regions will further pressure municipalities and states to consider new paradigms of taxation, such as carbon taxes and sugar taxes, in order to meet their obligations.

These forms of taxation will force states to cooperate more to avoid border-arbitrage, and so anticipate “regional regulatory, tax, and market unions”, akin to what we already have in the utility industry with certain ISO’s.





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