The stock market and the housing market are two very different things, however, analysts have noticed a correlation between the two. Why is this? And how exactly does the stock market affect the housing market?
Some real estate agents tend to believe that a stock market slump always helps real estate, and in many ways that may be true. But the answers to these questions are not so black and white. Take for instance times of economic expansion such as October and November of 1987 or times of market corrections such as September 2001 following the terrorist attacks of 9/11; while the stock market took a huge hit, the housing market remained relatively unaffected. On the other hand, when looking at periods of recession, the stock market as well as the housing market were both affected negatively.
So what is the key difference? Well for one, the state of the economy as a whole. In times of economic expansion or market corrections often times MORE jobs are created, which means more people are capable of buying a home; In times of recession unemployment rates rise, consumer confidence declines, and current homeowners choose to hold on to the house that they have rather than sell. Now that is not to say that during times of market correction the housing market is not affected at all, there have been some studies that show that home sales declined slightly during the months following major corrections but this is likely due to the decline in stock assets for many potential buyers.
On the positive side for the real estate market, when the stock market falters mortgage rates tend to decline since bond values increase, which drives down long-term rates. Another positive is that investing in real estate is, for the most part, safer than investing in stocks. So when faith in the stock market is low many people opt to invest in more tangible assets such as real estate. Which is a good thing for buyers, sellers, and real estate professionals alike.
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