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Market Perceptions, Market Realities

It’s that time of the summer when buyers are particularly tuned out from, well, most things.  So, it’s not entirely surprising to get “please update me” questions about the real estate market.

What seems odd is the question I’m getting quite often right now: “Do you expect the real estate market to drop 15-20% if the stock market drops?”

Some think the housing market is headed here; probably not

There’s a bit to unpack within that question, which I’ll do with two questions:

My first question to them is “Do you think the market has been strong until now?”  It does seem that people have completely ignored the last 24-30 months of price softening going on within NYC and beyond.  Perhaps this person has also missed out on some changes in tax policy across the US.  We had a change in the tax regime.  We have a president who changed tax policy.  We have a Fed that has lowered mortgage rates nearly 50 basis points in the last 2 months.  We have a financial activist in the White House!  People don’t realize that the NYC housing prices are really reasonable already!

Second, I would ask them, “Do you still think the housing market is correlated to the stock market?”  I ask this because this used to be true, and now it isn’t.  The stock market has run up for nearly 9 years, and as it comes back towards Earth, it invariably will catch people’s attention more.  There is a chance that someone watching the Housing Market simply assumed that the real estate market has been keeping up with the stock market.  Of course, this isn’t true.  Housing and stocks have been largely uncorrelated for about 3-4 years now.  If the housing market strengthens, it may be because the stock market actually tanks.  I’ve written a lot about that thinking.  Buyers may take money off the table from stock gains and put into real estate.  This lethargy cannot and will not go on forever!

The answer to the original question, whether I think the real estate market has much further to fall, if at all, in the event of a stock market correction?   I would answer unequivocally “no.”  There is nothing that indicates that the housing market and stock market will march in lockstep these days.  With low mortgage rates, and a push to create an extension of this strong stock market, I’d be more inclined to see prices go up this Fall.

That’s it! Email, call, message me with more questions! -Scott