Author Topic: If the stock market crashes will RE go up or down?  (Read 1059 times)

eddy20

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If the stock market crashes will RE go up or down?
« on: December 24, 2023, 04:40:03 PM »
Just wondering what people think, if the stock market crashes will big money pile into the relative safety of Real estate? Or will the stock market crash and peoples 401ks crashing also drag real estate down and put us in a depression?

clarkfan1979

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Re: If the stock market crashes will RE go up or down?
« Reply #1 on: December 25, 2023, 04:49:33 AM »
Just wondering what people think, if the stock market crashes will big money pile into the relative safety of Real estate? Or will the stock market crash and peoples 401ks crashing also drag real estate down and put us in a depression?

Based on my personal experience of making offers on houses over the past 16 years, when the stock market is up on a year over year basis, I feel like offers on houses are more competitive.

Based on human behavior, people feel more comfortable selling stock "at an all-time high" to buy into a house to the point that they are willing to pay over asking for the house.

When the stock market is down, the offers on houses tend to be more boring, logical and rational. I think there are more deals to be found in real estate when the stock market is down. 

GilesMM

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Re: If the stock market crashes will RE go up or down?
« Reply #2 on: December 25, 2023, 07:08:35 AM »
Just wondering what people think, if the stock market crashes will big money pile into the relative safety of Real estate? Or will the stock market crash and peoples 401ks crashing also drag real estate down and put us in a depression?


Generally, stock market crashes coincide or are followed by real estate slow-downs but it depends on why the stock market crashes.  In 1987 and 2008 the stock market crashed along with real estate due to a real estate bubble and poor lending practices.  In 2000 the tech bubble deflated and took the stock market with it but real estate carried on unaffected as lenders were on a tear (which unraveled a few years later).  If the stock market crashes because the economy is in the toilet and nobody has a job, real estate will crash as well.   If high interest rates crash real estate (as they are starting to do now), it may be good for the stock market as an alternative place to put money.   

SeattleCPA

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Re: If the stock market crashes will RE go up or down?
« Reply #3 on: December 26, 2023, 07:28:07 AM »
Just wondering what people think, if the stock market crashes will big money pile into the relative safety of Real estate? Or will the stock market crash and peoples 401ks crashing also drag real estate down and put us in a depression?

The "Rate of Return of Everything" research paper that came out a few year ago said that housing shows little correlation with stocks. Like .2 or .3.

So I think/assume we really know two things:

1. That there's a weak correlation but not that much.

2. That a portfolio that includes both asset classes overall has less volatility. Which is a good thing.

P.S. The actual paper appears here: https://www.frbsf.org/economic-research/wp-content/uploads/sites/4/wp2017-25.pdf I did a blog post about the paper here: https://evergreensmallbusiness.com/rate-of-return-on-everything-paper/

ixtap

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Re: If the stock market crashes will RE go up or down?
« Reply #4 on: December 26, 2023, 08:06:48 AM »
Yes, it will either go up or down. Or possibly remain flat.

Paper Chaser

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Re: If the stock market crashes will RE go up or down?
« Reply #5 on: December 26, 2023, 08:41:24 AM »
In the very short term, historically prices have flattened or dropped slightly in the majority of modern US recessions:


Prices tend to rebound in the months/years afterwards as The Fed often takes steps to stoke the economy (cutting interest rates and improving affordability):


So the question seems to be what the length of the recession might be, and how long you would be willing to wait for a potential rebound in values. Trying to time any market (real estate or stock) is difficult and comes with downside and upside risks.

That's a snippet of the US market as a whole however, and real estate is highly local. Some markets are already down significantly (Austin, TX), while others have remained relatively strong. If some regions are highly impacted by a struggling industry (silicon valley, or gas/oil country, etc) that will impact that market differently than an area like DC that has high levels of stable government employment. Other demographic trends due to job markets, natural resources, or whims of the consumer will also be a factor. There has been a lot of demand for housing in Western states in recent years that has lead to high prices. Simultaneously, those locations have seen worsening heat/drought conditions. And demographic predictions for all of the US seem like more of a headwind than a tailwind to me over the next few decades.

I guess there is no good answer here. It all depends on a ton of external factors out of your control, your individual needs, timeline, tolerance for risk, and familiar knowledge of a local market.
« Last Edit: December 26, 2023, 08:48:40 AM by Paper Chaser »