Recent Stock Market Volatility Dangerous for Real Estate? Experts Unconvinced
By Jordan Grice
Real estate experts believe recent stock market volatility isn't concerning as long as it's temporary, despite a rocky start to the week for trading, as well as global events worrying investors.
According to Ruben Gonzalez, a chief economist, recent declines in the market are mainly due to fears on Wall Street that the Chinese property market could disrupt global financial markets. Those concerns prompted a stock market selloff that dealt a sizable blow to major U.S. stock indexes.
The effects have proven to be short-lived as indexes rebounded days later with ongoing signs of recovery, despite overseas issues. As of Sept. 23, The Dow Jones Industrial Average rose 2.6%, while the S&P 500 saw a 2.4% gain.
"We don't view short-term stock market volatility as a huge factor impacting real estate markets," says Gonzalez. "However, as smaller investors look to park capital gains in a more stable environment, we could certainly see some of that money migrating into residential real estate."
Watching the Volatility
A short period of shaky stock activity may not hurt the housing market. However, sustained volatility could pose a problem, particularly for homebuyers, according to Anthony Lamacchia, a real estate executive.
"As long as it's not ongoing, it's nothing and won't do anything to housing, but when it appears to be continuous, that's when you see people pull back. "Lamacchia says, noting the 2020 COVID-induced recession as an example of the adverse impacts to market activity.
"People didn't just pull back because they were stuck in their houses," Lamacchia continues. "They also pulled back because their 401Ks were crashing to the ground. If [the volatility] continues, you'll see buyers get a little more hesitant."
Lamacchia isn't convinced that will happen, and neither is Rick Sharga, executive vice president at RealtyTrac, an ATTOM company.
Sharga shared similar sentiments as Lamacchia, adding that a period of short-term volatility in the market could push more people to move their money into real estate.
"A period with a risk of a market downturn [could push] people to go to a safer haven, and that very often leads to more investment in real estate," Sharga says. "You could have just the opposite of the effect. If we were to see a continued selloff in the marketplace, that does have a psychological impact on the market to where people get a little more conservative with their money."
Fed Eases Nerves
Improvements in stock market activity are also tied to the recent Federal Reserve policy update, according to George Ratiu, manager of economic research at realtor.com®.
"There is always a maxim that holds for stock market activity which is stock markets abhor uncertainty," Ratiu says, also noting ongoing issues with the Delta variant and slowing momentum domestically as factors in investors' skittish behavior in recent days.
Ratiu thinks the uncertainty has cleared after the Fed announced plans to keep interest rates near zero and maintain the current pace of asset purchases.
The Fed also indicated that rate hikes could happen sooner than they projected in June.
Experts at the Mortgage Bankers Association (MBA) say they aren't surprised at the Fed's plans to remove accommodation, in a statement following the FOMC's Sept. 22 meeting.
"The job market has improved, inflation is running hot and supply chain constraints are persisting," says Mike Fratantoni, SVP and chief economist at MBA. "The biggest news out of this meeting was the change in FOMC projections, with most members now seeing a first interest rate hike in 2022, which is faster than many market participants had previously anticipated."
Fratantoni also notes that a pending taper and change to the monetary policy outlook will likely contribute to a modest increase in mortgage rates over the medium term.
Cautiously Watching
Despite optimism over recent market rebounds, there is a chance that volatility could continue, according to DataCore Partners LLC Chief Economist Donald Klepper-Smith, who suggests that the stock market is in "nosebleed territory."
"This is an overextended market, and I don't think it's sustainable in the long run," Klepper-Smith says. "Right now, the stock market is being propped up behind the scenes by the Federal Reserve, and the question is can they do this indefinitely?"
Klepper-Smith doesn't think so, stating that at some point, "we are going to have to live within our means."
"I think the stock market is usually a leading economic indicator of future activity, and my sense here is we are going to be watching a consolidation over the near term, so we'll keep our eyes on it," Klepper-Smith says.
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