As a general rule, the strength of the United States economy significantly impacts the strength of the real estate economy. Whether assessing GDP, unemployment, or income growth, each variable has a unique impact on the real estate market, specifically how investors and homeowners can react. Most homeowners understand these aspects of the US economy; however, many are not avid followers of the stock market. Perhaps they are not personally investing, or maybe they have a managed fund – either way, understanding the connection is important for any individual associated to both markets
Understanding the Connection
There is an indirect correlation between the two markets related to the status of interest rates – specifically mortgage rates. In times of low volatility, lenders tend to offer lower interest rates, therefore increasing the opportunities for potential home buyers. In times of high volatility, the opposite occurs – mortgage rates are higher and few buyers are permitted the option to purchase, ultimately slowing down the housing market. Increased mortgage rates do not only impact home buyers, but also investors seeking investment properties. As this occurs homes become in less demand creating a decline in the housing market as well.
Volatility can also have an impact on the down payment required by the lender. Similar to the scenario above, a more volatile market can create higher demand for larger down-payments from potential home buyers. Ultimately, high volatility in the market can lessen the number of potential home buyers, therefore reducing the competition for any seller. The final result: a lower selling price for the home.
Additionally, there is a strong relation between the real estate market and the stocks of companies that supports the real estate market. For example, reviewing companies like Home Depot, D.R. Horton, and Lennar can provide homeowners an understanding of the anticipated future of their house’s values.
Lastly, reviewing the overview of the US economy as a whole, including the strength of the stock market, can give homeowners and potential home buyers a general idea of the status of the economic health of the country. If investors think the U.S. housing bubble will burst, they will start selling these stocks related to the real estate and housing market.
- Interest rates are rising. Since this is one of the only connections between the two markets, the change in lending should not go unnoticed. Throughout 2018, the Federal Reserve raised the central bank’s benchmark interest rate four times, totaling to an increase of 1%. On March 21st, the rate raised from 1.50% to 1.75%; on June 13th the rate raised from 1.75% – 2.00%; on September 26th, the rate raised from 2.00% – 2.25%; then, on December 19th, the rate raised from 2.25% to 2.50%. There is expected to be two more hikes in 2019. This rapid influx in interest rates is anticipated to slow the housing market down, reducing the number of buyers in the market.
- Real estate related stocks have witnessed a decline in the last year. Home Depot (HD) has gone down 1.30% YTD; D.R. Horton (DHI) has gone down 15.42% YTD; and Lennar (LEN) has gone down 22.47% YTD. Additional homebuilding stocks to review include: LGI Homes (LGIH), which has declined 3.92% YTD and Eagle Materials (EXP), which has declined 29.73% YTD. The trend seen in these stocks over the last year are an indicator that the housing market may be following a similar pattern.
What Does This Mean For You, The Homeowner?
Selling your home may be more challenging now compared to a few months ago. Rising interest rates are causing a decline in the number of home buyers and an unsteady/declining stock market is signaling a weakening in the housing market as a whole. Nevertheless, you as a homeowner do not need to fall victim to this decline. Selling your home to an all cash home buyer can provide you the stability and certainty for your next move. We here at Gulf State Homebuyers do not depend on lending when purchasing your home, therefore, the changes in interest rates do not always impact out offers. We have the capital at hand to purchase your homes, therefore removing any finance contingency in the sale. Additionally, we are also buying. Yes, the stock market may be indicating a decline in the housing market, but the reality is: the housing market is still strong. And we can provide you a competitive offer than reflects how exactly the local market is doing.
To learn more, contact us today for your free consultation.