Hagerty Market Rating may predict global financial markets

Political instability affects markets, and classic cars are not exempt. Additionally, classic car values may be a predictor for financial markets at large.

An article by Sara Sjolin posted today on MarketWatch.com makes this case. One of the story’s sources, Wolf Richter, uses the Hagerty Market Rating to demonstrate how the downturn in classic car prices in 2008 preceded the stock market crash by a few months.

We’ve been watching the Hagerty Market Rating descend gently since its peak in September 2015. Currently at July 2014’s level, the HMR is now on a downward slope rather than upward. But much of the value shed has come from the top of the market: cars worth more than $250,000. And the top’s depreciation or flattening has occurred organically. Which begs two questions.

First, does the HMR’s downward trend predict a downturn for global markets? And second, will added pressure, due to political uncertainty in the world’s largest economy, force commodities (for lack of a better term) prices down more broadly or quickly?

According to Brian Rabold, Hagerty’s Vice President of Valuation, some of the attention that higher-end cars had received through 2015 has been redirected into less expensive cars. “Many buyers at the upper levels have been changing their focus, looking for cars that represent less risk. This also helps buoy and even bolster prices for sub-$100K cars.”

But if markets drop significantly, what does that mean for car enthusiasts? “A downturn will scare investors which keeps classic cars in end-users’ hands, keeping prices more affordable and stable over the long run,” says Rabold.

If this feels familiar, you’re right. In 2008, markets collapsed and we lapsed into the Great Recession. The classic car market took 36 months to recover. Rabold says, “If you bought in the last year or 18 months as an investment, and the bottom falls out—which I don’t think is likely—you probably won’t see a return for a long time.”

While the classic car market recovered as a whole, some cars appreciated to unseen levels (Porsche 911s, for instance), and others have yet to return to their 2008 price (e.g. Chevrolet Chevelle LS6 convertibles). Monday-morning quarterbacking is easy. Predicting which cars will be hardest hit is nearly impossible.

The most important thing to remember is that if you love a particular car, it doesn’t matter what it’s worth. And if Richter is right and the Hagerty Market Rating is a reliable predictor for global markets, then it might be wise to assess your market positions and retirement fund allocation.