How Does The Real Estate Market Affect The Stock Market?

Discussion in 'Stock Market Education' started by Rainman, Nov 24, 2014.

  1. Rainman

    Rainman Senior Investor

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    Someone asked me that question though I know that when the prices of property plummet it in turn causes mayhem in the stock market. I'm yet to answer the question but I need your help. How are the two interconnected?

    So here we go . . . again.

    Why does the real estate market affect the stock market?
     
  2. Peninha

    Peninha Senior Investor

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    Good question there, but I feel that it's a complex answer. I think that both markets are connected because big interests are involved, exactly how it works I really can't say.
     
  3. JR Ewing

    JR Ewing Super Moderator Staff Member

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    They will both tend to behave in similar ways through the economic cycles and to the same or similar events.

    Many people underestimate the volatility of the real estate markets - because you're not constantly bombarded with up to the minute visual and verbal confirmations of valuations of properties the way you are with stocks and bonds. Generally the only time you know how much properties are worth is when they are appraised and bought / sold.

    People also tend to forget about property taxes, insurance, and capital gains taxes on sold properties. Liquidity or lack thereof is also a factor.
     
  4. turt

    turt Guest

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    Most people's wealth is tied up in real estate. Think about it, a $300,000 house sells to a person who only made a $50,000 down payment. That's $250,000 put into the economy that isn't backed up by anything.
     
  5. troutski

    troutski Guest

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    The real estate market affects the stock market so much because the former market is so much more than just home prices. Included in the real estate market are property values, construction volumes, and so much more. When the real estate market is doing well, it's a decent indicator that the rest of the economy is doing similarly well. The stock market works in a similar manner, too, in general.
     
  6. dianethare

    dianethare Senior Investor

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    Am sorry for trolling on your thread Rainman but i also needed to know how the two are interconnected, the gold nuggets of wisdom in this regard are immense, now am not at a loss :)
     
  7. My401K

    My401K Well-Known Member

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    Think circle of life, if people are not buying houses they are not doing the things that go with home ownership. Like for example paying taxes, buying insurance raising kids. It means the economy is volatile as people are not as secure, hence not spending or saving. You can figure that things are happening in the middle class when home building and sales decline. While it is true this is driven by population demographic (people at the right age to settle down etc.) there are many many factors that also come in to play. This is a trend that does not easily change. It can take years. It has been 7 years now since the recession.
     

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