Lipstick or Construction? The Economic Indicators You Should Pay Attention to
Have you ever felt that it only rains after you’ve washed your car? Or that your favorite sports team seems to score more points when you sit in the same exact spot on your sofa, wearing a jersey that cannot be washed—lest it lose its luck
These leaps of logic are a bit of magical thinking. Rationally, you know that it would have to rain every single day, and everywhere, if there were always a downpour every time anyone leaves a carwash. However, these beliefs serve very real purposes: they can create a false sense of control over something that would otherwise feel too large, or too anxiety-inducing (like whether your team takes home the trophy or not). They give us peace of mind by creating a cause-and-effect relationship that eases our human fear of the incomprehensible and unpredictable.
The economy can seem as mystical as a cataclysmic storm or as nail-biting as a championship game, and people have created all kinds of “theories” to predict the financial headwinds of the times. Here are a few of our favorite flukes, as well as what you should really look out for:
The Super Bowl Indicator
The Super Bowl indicator is the theory that whichever league wins the National Football League’s Super Bowl has the ability to foretell whether the next year’s stock market will be a bear or bull market. If a team from the American Football Conference (AFC) triumphs, it means fur and claws as the stock market declines in the upcoming year. However, a win for a team from the National Football Conference (NFC) means the stock market gets its horns and will rise in the coming year. The theory was coined in the late 1970s by New York Times sports reporter Leonard Koppett.
Now before you go out and start blaming Taylor Swift and Travis Kelce for hurting the S&P, you should know that this economic indicator has been thoroughly debunked. Not only is it biased against the entirety of the AFC (what did the Bills ever do to anyone?), but it is historically false. Over the past 23 years, it has only been “correct” ten. That means this theory is only accurate 43.4 percent of the time. Further, when Koppett “discovered” the Super Bowl Indicator, it was only because it seemed “true” when applied up to 1978. That’s a little too convenient to be clear research, Leonard.
Reality has shown that this “indicator” is more coincidence than cause and effect. As far as we’re concerned, you can shake it off, Chief.
The Lipstick Index and Champagne Indicator
The fundamental belief that underlies the Lipstick Index is that women purchase more lipstick when the economy is bad. So, if lipstick sales start rising – it portends bad markets ahead. This idea comes from another Leonard, former Estée Lauder CEO Leonard Lauder.
The Lipstick Index has failed as a reliable indicator during recent recessions. Lipstick sales dropped during the financial crisis and throughout the pandemic, according to the Kline Cosmetics and Toiletries USA report.
Although this indicator appears to be simple lip service, it belies a sound foundation if you look beyond face value.
From a wider lens, the Lipstick Index is about more than cosmetics. It’s more about consumers turning from large purchases to more affordable luxuries due to economic uncertainty. Instead of spending on a weekend in Paris to recapture some joie de vivre, a consumer may fetch une petite treat at the corner café.
Economists agree that in tougher economic times, people do spend less on big-ticket items and more on lower-stakes goods. Canadian markets in the past year believed they experienced the Lipstick Index, as spending on beauty products increased 18 percent. American retail markets also reported an uptick in “treat-yo-self” transactions, with sales of food and beverage products growing by over 20 percent. The Lipstick Index, taken broadly, has some support.
Interestingly, another unusual economic “theory” called the Champagne Indicator, is supposed to have an opposing relationship to the small self-indulgences of the Lipstick Index. The idea is that people buy champagne when they have things to celebrate – so increasing champagne sales should correlate to economic gains. This bubble seems to have burst; however, Forbes reported that champagne may be a good investment because of weather problems in France that hurt crops and reduced available wines. C’est la vie.
Economic Indicators, Really
Okay, okay, that’s probably a long enough detour through the well-meaning but not-true world of economic predictions. Instead of chasing touchdowns and scouring Sephora for financial insight, we recommend that real estate entrepreneurs keep an eye on some of these tried-and-true economic datapoints.
You can look at each piece of information in this list at a national, local, and neighborhood level. When viewed together, the trends within this data can provide a full picture of the health of the real estate market and help identify market swings.
1. Home Sales
The National Association of REALTORS® (NAR) provides data each month on the amount of homes sold across the US in its Existing-Home Sales report.
As a real estate professional, you should be interested in the number of home sales because you sell homes! Plus, knowing the number of home sales in the national market gives you a baseline understanding of possible opportunities. It can help you perceive seasonality in addition to letting you know if the market is generally heating or cooling.
When you compare your local market to the national numbers, you can start to identify trends at state, local, and neighborhood levels.
2. Home Prices
Understanding the market price of homes is a core component of real estate business. Just like lipstick, the cost of houses will vary depending on numerous market factors. Sure, a tube of Chanel will always cost more than a tube of Revlon—the same way a luxury home will always be priced higher than a starter. But a savvy consumer knows never to pay luxury prices for drug-store, bargain-bin products.
As an agent, sellers will expect you to advise them on pricing their properties competitively. Buyers want to ensure that they purchase at reasonable cost.
You can also use this knowledge to pivot your business focus. If home prices are going up, you will know to lean into the listing side of your business. If they are going down, prepare to be working with more buyers.
You may even want to look at home sale prices to identify opportunities for business expansion.
3. Time on Market
Are houses in your area selling like hotcakes? Or are they lying untouched like cold, rubbery eggs? How long it takes homes to sell in your market will tell you a lot about demand. It can also tell you about whether the current prices in the market will remain stable.
For more information about how time on market affects pricing, see our guide on using price repositioning here.
4. Inventory and New Home Construction
The term “inventory” represents the number of homes for sale in your market. Each home that has the potential to go on market offers two possible sides (buyer and seller) that need to be represented by an agent.
Before you make medium-term plans for expanding your business, you might want to check this indicator for a sense of whether you’re heading into feast or famine. Like the overall amount of home sales, inventory will show you the amount of opportunity available to your business.
5. Mortgage Rates
We’ve explained mortgage rates in-depth before. Knowing where current rates stand in combination with home prices will help you piece together the affordability of your market.
For many potential clients sitting on the sidelines, the direction of interest rates is just as important as the number on closing day. If interest rates are trending downward, you’ll likely be dealing with an influx of buyers. If they are hearing that interest rates are climbing, chances are they will be hesitant to enter the market. However, using your expertise, you can advise potential clients on whether these beliefs are valid for their situation.
As you head into this year, keep your mind right and focus on the data that matters to you. As fun as it is to imagine “economic theories,” like whether the nationality of the model of the Sports Illustrated swimsuit issue can tank the stock market, it’s usually best to look to plain ol’, time-tested data for the information that will affect your business.
Which indicators do you follow to see trends in your market? Let us know on our Facebook page. And, don’t forget to subscribe to our newsletter for more informative articles and resources.