Does the Stock Market Affect Real Estate?
Investors rejoice! This week the DOW climbs above 21,000 and the economy seems to be humming right along. If you are like me, you may wonder if this means that the value of my home will be increasing to a record level. Or, you may be concerned about if this is a good time to buy a new home. Does the stock market affect real estate? Should I be comparing my property to the strength of the economy or other factors?
No direct relationship to Real Estate
Isn’t there a direct relationship between the stock market and real estate? If people have more money, and have confidence in the market, that should lead impact all other forms of investing, right?
No so fast. Comparing home prices and the S&P 500 from 1968 to 2011 shows no indications of influence. Home prices and stocks rise over that time, but no clear correlation seems to exist.
The strength of the economy on the other hand, no
When the economy is doing well, investment does in fact increase in both sectors. This makes sense, because again, people have more money to spend and feel more confident in investing. But demand for all goods and services increase. Car sales increase too. So does construction, appliances and anything else that is available for sale.
So while a strong economy is good for the stock market and home prices, there is still no direct relationship between the two.
What about Inflation?
While stocks and homes increase in value during times of inflation, this is merely a reflection of the value of the dollar. Home prices can increase because of high inflation, low inventory and consumer confidence. But those factors do not change the performance of the stock market. In fact, low inflation can drive the stock market higher while the real estate market is could be negatively affected.
This is not to say that the stock market isn’t influenced by strong real estate news. Lets face it, following the stock market has become an exercise in following the latest public relations release or ‘expert’ tip. Huge increases or decreases in certain stocks can be directly connected to a shocking or hopeful report about them. So the stock market is definitely trendy and emotional. Yet, it is not directly impacting the value of your home. For the best information about the best price or timing to buy or sell, it is always best to consult an expert realtor in your area.