This past week we’ve seen some wild fluctuations in the stock market, so we thought we’d answer some questions people have. One question we’ve heard recently is does stock market volatility affect real estate values?
The simple answer is, not really. There is a general correlation between stock market values and real estate values. As the economy does better, both markets tend to do better. However, we’ve seen instances where people pull money out of the stock market and place it into the real estate market.
Interest rates tend to affect sentiment in both markets. Rising inflation leads to rising interest rates, which both markets dislike. Investors will sometimes pull money out of stock market and into bonds for the yields. Therefore, the stock market doesn’t like rising rates. Rising rates also hurts borrowers as it zaps purchasing power from buyers in the real estate market.
However, we’ve seen inverted yield curves whereby sort term rates are higher than long term rates. This breaks most of the rules as usually long-term rates carry more risk, so investors want more yield in a longer security. Therefore, we have to look at the reasons for interest rate and stock market volatility before drawing conclusions as to its effect on consumer sentiment and real estate prices.
On Friday February 2 jobs data came out and showed wages climbed 2.9% from the previous year which was the best gain since 2009. This spurred inflation fears and concern that the fed would hike rates unexpectedly, which naturally draws volatility from the stock market.
The bottom line is not much has changed in the economy in the last week or so. The only thing that has changed is stock volatility, and the realization that rates will go higher. We’ve been talking about it for a few years, and reality is finally here. Everybody knew this day was coming.
The tax reform has spurred wage growth. We expect to see a tight labor market. Some jobs are moving back to the US, while some jobs will be lost as business reorganizes. Retail stores and banks may continue to come under pressure as online wins the day.
I wouldn’t put much attention into the stock market other than seeing how it affects your retirement savings. The smart money is watching interest rates. Rising rates don’t necessarily kill the stock or real estate market, but it can stifle or limit its growth.
Wage growth will dictate how far real estate prices will rise. The stock market doesn’t go one direction forever, and neither does the real estate market. Wages must eventually rise if you want continued rise in prices. Rising rates stymie price growth, and rising wages can offset some of that. Unfortunately, rising wages is correlated to rising rates as they can be inflationary.
The stock market did well 2008-2016 due to free money. It did even better in 2017 due to rising expectations in the economy. Free money is over, and it must be. We’re heading into a period of normal market conditions controlling the markets. This is healthy and a good thing.
We’ll be watching inflation, interest rates, oil, and the overall economy. We’ve got a balanced real estate market here in SW Florida. Buyers are scooping up properties now to beat those rising rates, however they’re not over-paying either.
Buyers want to buy, but not overpay. They’re being careful and doing their homework. Inventory is rising, but still low. Research and market knowledge wins the day whether you’re a buyer or seller.
One of the best websites to keep up with the market is www.LeeCountyOnline.com The database is updated every few minutes. It not only has all the listings, it also has sold data in our market reports section.
Always call the Ellis Team at Keller Williams Realty for professional real estate advice 239-489-4042. If you’ve got a house to sell, ask for Sande or Brett. Our team stands by ready to help you buy or sell, and educate you on the market.
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