By BRIAN BOGULSKI | Special to the Palisadian-Post
The stock market has seen incredible highs over many sectors during the pandemic. While it still has a volatile reputation, 2020 saw it continually making and breaking records. With both markets showing tremendous growth independently, the economic relationship between the two can’t be overlooked.
Many of us can feel our money growing as the stock market trends upward, which can lead to spending more money on housing. Buyers with robust portfolios will put some of that money into purchasing a home. That, mixed with all-time lows in interest rates, will tend to drive up home prices.
When there is a short-term adjustment in the stock market, there tends to be minimal effect on the housing markets. But any large-scale decrease in equities can have a noticeable impact.
When stocks are in a solid market for a long period of time, there tends to be a positive influence on the housing market. When the stock market takes a turn and falls into a bear market for a substantial period of time, this may also cause the housing market to slide.
This is where the relationship between the two stops.
After the great recession in 2008, there have been many regulations put into place. This, along with the stock market not being heavily invested in sub-prime mortgage debt and the fact that many more people today have much more equity in their homes, is the reason why we will not see another black swan event in the housing market as we did in the late aughts.
While the stock market does have some influence on the housing market, some other variables play a more prominent part. Job growth, along with income growth, tend to have a larger effect than stocks. Demand for homeownership will always be strong with jobs being available with rising wages.
Basically, if companies are offering competitive wages, buyers have the confidence to take on a 30-year mortgage.
This effect is also compounded further by low employment rates—as people are confident that even if they lose their current job, the chances are high that they’ll find another one quickly.
Many homeowners ask themselves how they should prepare for a sustained drop in the stock market. With today’s market being so high, most feel it has to contract at some point considering all the records it has been setting.
A strong bull market that starts to slide into a bear market may signal to some buyers that they should hold off on making the largest investment of their lives.
With that in mind, a drop in demand will almost always lead to a drop in prices, creating a buyer’s market.
Many sellers need to understand that other than during the Great Recession, housing values do not drop during recessionary periods; they merely plateau before steadily rising again.
Always remember in the end that your home is an appreciating asset. If the stock market does have a negative effect on real estate, the decline is typically short lived.
The value of your home should always recover. So, when it comes to your home as an investment, always go long.
Brian Bogulski is a sales partner with Amalfi Estates, which has sold $1.5 billion in properties and was selected by the WSJ as one of the top 25 agents in the country out of more than one million agents. If you are thinking of buying a home or selling your own, contact Brian Bogulski at 323-983-1177 or firstname.lastname@example.org.
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