#AskTheDanielMTZ Episode 16: The Stock Market’s Effect on Real Estate

Last week I tried out another approach to addressing topics that interest those looking to get into real estate. Today I decided to focus on the condition of the stock market and its effect on real estate. There are many factors that contribute to the complexity of our economy and we will definitely touch on some of those in the future.

How can housing be affected by the stock market?

INDUSTRY RELATED BUSINESS

The housing and stock market are related in many different ways. One way comes in the form of home builders business. Major home builders’ shares are traded in the stock market. Home improvement companies tied to home building also trade on the stock exchange. The housing sector is deeply ingrained into the economy as furniture manufacturers, plumbers, electricians, landscapers and more are all dependent on housing. Housing development and the stock market are both leading indicators of economic activity.

CONSUMER CONFIDENCE

Consumer confidence is a major consideration when people purchase durable goods and real estate. Few people are likely to commit to a big mortgage payment if they feel that their economic future is uncertain and that type of sentiment is affected by the strength or weakness of the stock market. Take oil for example: when the boom was happening, many workers in the field felt comfortable purchasing homes and generally spending money. It isn’t an end-all by any means, but the slow period of a job sector that’s affected by bigger economic factors will have an impact on real estate. This type of tight spending is brought on by loss of confidence. Loss of confidence can spread like a virus, affecting other people who haven’t felt the effects personally but have lost faith in the economy as a whole and closed their wallets.

FUNDING

Down payments for real estate purchases have fluctuated in the past, but following the housing crash that began in 2007, lenders’ requirements for borrowing became stricter. Big banks and other lenders started having larger down payment requirements for their mortgage loans than they were before the crash. This ties in a bit with lack of consumer confidence. When the strength of companies that many potential buyers work for become affected, those buyers tend to be more conservative and plenty of times cannot raise the type of funds needed for a bigger down payment. When the economy isn’t doing so well and consumers’ buying power decreases, putting money away with the purpose of getting funded for a home becomes almost a pipe dream. Lax lending led to a crisis but too-tight lending can stall the economy.

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