It’s difficult to know exactly what uncertain stock markets mean for homeowners because there is no direct cause-and-effect relationship. There are, however, some observable trends and definite correlations. We do know, from the 2008 US housing market crash, how real estate can affect the stock market. But how does the stock market affect real estate? One major effect is that stock indexes can influence homebuyer sentiment and perception. So let’s examine this to see what uncertain stock markets mean for homeowners in Los Angeles.
Changing Buyer Sentiment and Perception
As we just indicated, the first thing uncertain stock markets can mean for homeowners in Los Angeles is changes in buyer sentiment and perception. “There is typically,” according to market watchers, “a direct correlation between fluctuations in market indexes and consumer sentiment. When major indexes rise, consumer optimism generally increases, Likewise, when indexes sink, consumers typically become more fearful or pessimistic.” So market robustness affects buying decisions.
When the market is booming, prospective homebuyers will look at buying a home as a good move and a good investment. On the other hand, when the market tanks, buyers will see buying a home as a risky investment. And then when stock markets are merely uncertain, buyers will simply be tentative or uncertain. So uncertain markets determine, to some degree, whether prospective buyers think they should or actually do become homeowners.
Similarly, what uncertain stock markets mean for homeowners in Los Angeles is that they should consult their local agent before making that big purchase. Your agent will be up on current stock market trends, as well as what that means for real estate, and can help you make the best purchasing decision. (To find out more, just call 562-881-9811.)
Interest Rates and Lending/Borrowing
There is an even more direct relationship between the stock market and the housing market when it comes to lending and mortgages. Almost all homeowners, when they buy a home, make a down payment and then borrow the rest of the purchase price from a mortgage lender. The health of the domestic economy, which is influenced by what stock markets are doing, plays a large part in whether interest rates go up or down and in how willing lenders are to extend loans.
So what do uncertain stock markets mean for homeowners in Los Angeles with respect to interest rates and lending/borrowing? Just this, according to the experts: “In times of low volatility, banks often will lower interest rates because of increased confidence in borrowers’ ability to repay loans. In times of high economic volatility, interest rates could increase because of uncertainty.”
A Buyer’s Market?
There is, however, some possible good news for prospective homeowners when stock markets are uncertain or falling. And this bright spot is that as buyer numbers decline, banks often loosen up lending policies and requirements. When there are fewer buyers, banks and other mortgage lenders have to do something to bring in more customers – usually by making it easier to borrow money to buy a home.
Basically, here’s how it works, and so here’s what uncertain stock markets mean for homeowners in Los Angeles. When the stock market is booming, there are usually plenty of prospective homebuyers. In this case, lenders have no incentive to offer competitive terms because inventory is typically short and buyer competition is keen. But when the stock market takes a downturn, available inventory increases, and so lenders are forced, to accommodate home buyers.
A Booming Real Estate Market and Uncertain Stock Markets
In recent years, since the 2008 debacle, the real estate market has been on the rebound. But there is a darker flip side to this.
According to one top real estate market watcher, “the booming housing market [has] contributed to the recent distress among stock market investors. . . . The strength of the housing market and economy, in general, is what’s spooking the stock market.” And then because there is a reciprocal relationship between stock markets and the real estate market, while the “housing market is unlikely to hurt the stock market,” if there is a real estate downturn, “continued stock market volatility or cooling of equities could have an effect on home-buying activity.”
If this does occur, it will likely be because the Fed thinks it necessary to raise interest rates. And, historically, the stock market tumbles some when interest rates go up. On the other hand, it could be good news for home buyers. Home prices have been increasing, but increasing interest rates will mean that price increases slow or halt altogether.
Recent stock market volatility and uncertainty could also mean that the increase in interest rates will slow. And this again is good news for homebuyers because, with lower interest rates, they’ll pay far less for a home over the long haul.
Now Just May Be the Time to Buy
Ultimately, what uncertain stock markets mean for homeowners in Los Angeles is that now may be a good time to buy a home. What real estate pros recommend during this time of uncertain markets is that you keep an eye on both the stock market and the real estate market to see how you can best leverage things to your advantage. And your experienced local real estate agent can help you do just that.