As a general rule, the strength of the United States economy significantly impacts the strength of the real estate economy. Whether assessing GDP, unemployment, or income growth, each variable has a unique impact on the real estate market, specifically how investors and homeowners can react. Most homeowners understand these aspects of the US economy; however, many are not avid followers of the stock market. Perhaps they are not personally investing, or maybe they have a managed fund – either way, understanding the connection is important for any individual associated to both markets
Understanding the Connection
There is an indirect correlation between the two markets related to the status of interest rates – specifically mortgage rates. In times of low volatility, lenders tend to offer lower interest rates, therefore increasing the opportunities for potential home buyers. In times of high volatility, the opposite occurs – mortgage rates are higher and few buyers are permitted the option to purchase, ultimately slowing down the housing market. Increased mortgage rates do not only impact home buyers, but also investors seeking investment properties. As this occurs homes become in less demand creating a decline in the housing market as well.
Volatility can also have an impact on the down payment required by the lender. Similar to the scenario above, a more volatile market can create higher demand for larger down-payments from potential home buyers. Ultimately, high volatility in the market can lessen the number of potential home buyers, therefore reducing the competition for any seller. The final result: a lower selling price for the home.
Additionally, there is a strong relation between the real estate market and the stocks of companies that supports the real estate market. For example, reviewing companies like Home Depot, D.R. Horton, and Lennar can provide homeowners an understanding of the anticipated future of their house’s values.
Lastly, reviewing the overview of the US economy as a whole, including the strength of the stock market, can give homeowners and potential home buyers a general idea of the status of the economic health of the country. If investors think the U.S. housing bubble will burst, they will start selling these stocks related to the real estate and housing market.
Today’s Market
- Interest rates are rising. Since this is one of the only connections between the two markets, the change in lending should not go unnoticed. Throughout 2018, the Federal Reserve raised the central bank’s benchmark interest rate four times, totaling to an increase of 1%. On March 21st, the rate raised from 1.50% to 1.75%; on June 13th the rate raised from 1.75% – 2.00%; on September 26th, the rate raised from 2.00% – 2.25%; then, on December 19th, the rate raised from 2.25% to 2.50%. There is expected to be two more hikes in 2019. This rapid influx in interest rates is anticipated to slow the housing market down, reducing the number of buyers in the market.
- Real estate related stocks have witnessed a decline in the last year. Home Depot (HD) has gone down 1.30% YTD; D.R. Horton (DHI) has gone down 15.42% YTD; and Lennar (LEN) has gone down 22.47% YTD. Additional homebuilding stocks to review include: LGI Homes (LGIH), which has declined 3.92% YTD and Eagle Materials (EXP), which has declined 29.73% YTD. The trend seen in these stocks over the last year are an indicator that the housing market may be following a similar pattern.
What Does This Mean For You, The Homeowner?
Selling your home may be more challenging now compared to a few months ago. Rising interest rates are causing a decline in the number of home buyers and an unsteady/declining stock market is signaling a weakening in the housing market as a whole. Nevertheless, you as a homeowner do not need to fall victim to this decline. Selling your home to an all cash home buyer can provide you the stability and certainty for your next move. We here at Gulf State Homebuyers do not depend on lending when purchasing your home, therefore, the changes in interest rates do not always impact out offers. We have the capital at hand to purchase your homes, therefore removing any finance contingency in the sale. Additionally, we are also buying. Yes, the stock market may be indicating a decline in the housing market, but the reality is: the housing market is still strong. And we can provide you a competitive offer than reflects how exactly the local market is doing.
To learn more, contact us today for your free consultation.
FAQs
The stock market's volatility, in particular, can determine a variety of factors such as consumer confidence, mortgage interest rates, the price of houses, and more. For that reason, you will want to have a close eye on the stock market if you plan on buying or selling any property.
Is there a correlation between real estate and stock market? ›
Diversification. Investing in both real estate and stocks can help you diversify your portfolio. Real estate investments are excellent for diversification due to their low correlation with other asset classes like stocks and bonds.
Will houses be cheaper if the market crashes? ›
If the market were to crash, would that make it easier to buy a home? It's possible, but it depends on what caused the crash in the first place. If it's anything like the last crash, where many workers lost their jobs, taking advantage of lower home prices won't be possible for many homebuyers.
Does a stock market boom increase household wealth? ›
March 7 (Reuters) - U.S. household wealth rose to a record of roughly $156.2 trillion at the end of 2023 thanks to a surging stock market that offset a drop in property market values, the Federal Reserve said on Thursday.
What happens to my house if the market crashes? ›
A housing market crash often leads to an increase in foreclosure activity. Homeowners who experience financial hardships may struggle to make mortgage payments, resulting in foreclosures.
Do houses appreciate more than stocks? ›
Stock Market vs.
In terms of averages, stocks have tended to have higher total returns over time. The S&P 500 stock index has had an average annualized return of around 10% over very long periods (higher if you include dividends), while average annual real estate returns are often more in the 4-8% range.
What is the causal relationship between real estate and stock markets? ›
Therefore, the “wealth effect” theory regards houses as investment and consumption goods. As a result of the rise in the value of their stock portfolios due to booming stock prices, investors are more prepared to shift their demand curves upwards and cause real estate prices to rise.
Is it better to invest in property or stocks? ›
As mentioned above, stocks generally perform better than real estate, with the S&P 500 providing an 8% return over the last 30 years compared with a 5.4% return in the housing market. Still, real estate investors could see additional rental income and tax benefits, which push their earnings higher.
What is the average return on home ownership? ›
The average rate of appreciation in California came in at 6.77% annually over the 39 year time frame.
Do you lose all your money if the stock market crashes? ›
Your portfolio might lose value, but losing value is different than losing money. When stock prices fall, your investments are not worth as much. But the market will inevitably rebound, and when that happens, stock prices will increase once again -- and your portfolio will regain the value it lost.
There are no signs that the U.S. housing market is about to crash. In fact, the economic outlook and expectations for the real estate market nationally are positive for 2024.
Will 2024 be a good time to buy a house? ›
In summary, buying a house in California in 2024 may be a good time for some buyers, depending on their personal and financial situation. The housing market is expected to rebound from a sluggish year in 2023, with more supply and demand, higher prices and affordability, and lower mortgage rates and inflation.
What is the average net worth of a household? ›
Between 2019 and 2022, the average American family's net worth increased by 23%. While the average net worth is upward of $1 million, the median net worth tells a very different story. Calculated this way, the typical American family has a net worth of $192,900.
Do rich people keep their money in stocks? ›
Bottom Line. Millionaires have many different investment philosophies. These can include investing in real estate, stock, commodities and hedge funds, among other types of financial investments. Generally, many seek to mitigate risk and therefore prefer diversified investment portfolios.
How much of your wealth should be in stocks? ›
The common rule of asset allocation by age is that you should hold a percentage of stocks that is equal to 100 minus your age. So if you're 40, you should hold 60% of your portfolio in stocks. Since life expectancy is growing, changing that rule to 110 minus your age or 120 minus your age may be more appropriate.
Is now a good time to invest in real estate? ›
There is no right or wrong time to invest because the real estate world constantly changes. It is never too late or too early; investors can be at any age.
Is it a good idea to invest in the housing market? ›
Real estate does tend to increase in value over time, but appreciation is not a guarantee. You may get a better return on your money by investing in bonds or the stock market, although the value of these investments can fluctuate more dramatically.
What causes housing market to go up? ›
Key Takeaways
Home values tend to rise over time, but recessions and other disasters can lead to lower prices. Following slumps, home values can increase in some areas of the country because of strong demand and low supply, while other areas struggle to rebound.
What happens to the economy if the stock market crashes? ›
A stock market crash can result in a bear market, which occurs when the market falls by 10% or more after a correction, for a total drop of 20% or more. A stock market fall might cause a recession. If stock prices fall substantially, corporations will have less capacity to grow, resulting in insolvency.
