Stock Market Profits From Slow Housing Market
(The slowing housing market is having negative effects on a variety of different sectors of our economy.)
Officials from every business and economic sector seem to be very concerned about the slowing market’s effect on pretty much everything and anything under the sun.
But, it seems as if the slumping market will have a positive effect on a different market – as in the stock market.
As investors pull out of the real estate market in droves, there is speculation and some proof that they will now be putting their money and investment dollars into the stock market.
A September 27, 2006 article by Chris Isidore of CNNMoney.com, “Wall St. gains from housing slump,” discusses this interesting turn of events.
“While economists, investors and even Federal Reserve policymakers express concern that the slumping real estate market will hurt the economy, U.S. stocks may well be getting an unexpected lift from problems in the sector. That's because a wide range of real estate experts agree that much of the current weakness in sales and home prices is due to investors pulling out of the sector. And some stock market experts say that the money being pulled out of homes is finding its way into stocks.”
While there is much speculation as to the accuracy of all the money being pulled from the real estate market and into the stock market, it certainly does make sense and has its merits.
It is probably not going to happen all at once, but investors are going to start pulling out of the real estate market more and more, and this money will probably start leaking into the stock market, as they look for other ways to build their wealth.
“Anthony Chan, senior economist at JPMorgan Private Client Services, agreed that the shift has been an important support for the stock market in a year it's been hampered by energy price spikes, concern about Fed rate hikes and forecasts for an economic slowdown.”
“‘We know new money is not going into real estate, since it looks more and more like that is dead money,’ said Chan. ‘I'm not sure the flow has been strong enough to cause an avalanche. But it's been enough to help the [stock] market hold its own.’ He estimated that from a quarter to about half the gains in the major stock indexes this year could be due to the housing market weakness.”
The amount of money that has gone from real estate to the stock market is very difficult to pin point, but most analysts agree that it is a tremendous amount, probably in the billions range.
But this makes a lot of sense considering the current state of our housing market. There is widespread agreement among economists and home builders that investor buyers, after helping to feed the building boom of the last two years, are pulling out of the market. Many are putting recently purchased new homes up for sale. While that is hitting home prices, it also is freeing up even more billions that those investors will look to deploy elsewhere.”
“‘There is no way we've seen the worst of the housing market,’ said Chan. ‘All the attention to home price declines and slower sales, all of that can be very positive for the equities because it sends a signal that stocks are attractive, relative to the housing market.””
