You indicated in your answer last week that the stock market having problems could help the real estate sector. How could that possibly be?
--Several readers wrote to "call me" on this answer.
Certainly, I do not think that a weak stock market is necessarily great for the real estate market. There are so many factors to consider that, in reality, there is no way that we can determine the overall effect. For example, we need to determine why the stock market is correcting. If the correction is just a breather, the effect upon real estate could be negligible. But if stocks are falling because rates are going up, then this same factor would be negative for real estate as well in the long run. What is interesting to add is that a really weak stock market can cause rates to fall because investors are putting their money into bonds – something that could help real estate. On the other hand, a strong stock market provides confidence for the consumer and therefore a strong stock market should help with regard to consumer confidence as it pertains to purchasing homes as well. Likewise, a weak stock market could hurt consumer confidence.
So where is the plus for the real estate market? If stocks languish after several years of gains, investors may be looking to put their money into other investments and real estate is a prime candidate for this money. Thus a long-term "underperforming" stock market could have a positive influence upon housing, but this is different from a crashing or severely correcting market. Last week I indicated that our economy is strong right now. The jobs that are being created are definitely a plus for housing. This also points to the latest correction being a breather, rather than the start of a bull market. Obviously, we can't predict the future and anything can happen, but I hope this analysis adds some perspective in this regard.
Dave Hershman has been the leading author and a top speaker for the industry for decades with six books authored and hundreds of articles published. His website is www.originationpro.com. If you have a reaction to this commentary or another question you would like answered in this column? Email Dave directly at [email protected].