How the Stock Market Affects the Housing Market
The Coronavirus has dominated the international news world for weeks. More and more reported COVID-19 (Coronavirus) cases are being reported, almost by the hour. Due to this virus, the US has seen stoppages in professional athletics (the NBA, MLB, and NHL have all ceased operations until further notice) and in collegiate athletics (all winter and spring championships have been canceled). Most colleges have informed students not to return until further notice. Even as I write this, public school officials are meeting to decide on when and how long to close. President Trump has recently declared a national emergency and the World Health Organization has classified Coronavirus as a pandemic. With many uncertainties, the world is almost at a standstill waiting for the spread of COVID-19 to abate. While the world holds its breath, the US stock market has already responded.
The blue-chip index was down almost 8,400 points, officially changing the stock market into a bear market. Defined, a bear market is a period in which major stock indexes see a decrease of 20% or more from a recent high point and will continue trending this low for a couple of months. Regardless of a specific type of market, investors always look for the lowest-risk that is the most profitable investment. With work stoppages, and no cure or a way to slow the spreading of Coronavirus, US investors have reacted by halting movement in the stock market as stocks are now becoming higher-risk and lower yielding. Many investors are now acting with more caution. For the housing market, however, the stock market has a different effect.
As the top sales team in Eastern North Carolina for the past ten consecutive years, Tyre Realty Group has an abundance of experience with buying and selling real estate. Over 90% of our clients finance the purchase of their homes. Apparently, most families do not have $200,000 lying around to purchase a home. Mortgages are not part of the stock market but are a part of the bond market. The bond market is inversely affected by the stock market. When the stock market is declining, the bond market will increase and vice-versa.
Since the stock market is a good indicator of the economy, when we enter a bear market, many people believe that the bond market is also failing. My own parents questioned me earlier this week, wondering if they need to wait to sell their home. However, this is an incorrect assumption. When there is too much risk in stocks, investors shift their money into bonds, which are more stable during bear markets.
Since the bond market and stock market are inversely connected, the bond market is seen to be the lower-risk compared to a bear market. For now, bonds are safer to invest in than stocks, even though bonds yield a lower return. Our participating lender, Atlantic Bay Mortgage Group, LLC reported earlier this week that rates are dropping even lower, some even as low as 3.25%. Rates this year were already trending in the high 3's to low 4's. Even as the FED declared an emergency decrease in rates, the bond market is still inversely moved, which is the drop in interest rates I just mentioned.
While we, and the rest of the world, wait for Coronavirus to be contained so we can continue our normal lives, rest assured that the bond market, including mortgage bonds, are performing well. This is good for current home buyers as they should not fear another housing bubble crash as we saw in 2008. Even buyers have an advantage with the lowest interest rates seen in the past 12 months. If you are looking to sell or purchase a home, do not let a bear market or Coronavirus deter your dreams. Buying and selling in the housing market are still happening and TRG is here to consult you through your real estate needs. If you are a seller, buyer, or both, TRG can help you navigate this market successfully. Contact us today at (252) 758 HOME (4663).
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