In my years watching the stock market and real estate, I’ve formed some opinions on how global issues impact the economy. The stock market has been up and down, volatile waves. What’s happening is the Corona virus was the pin that popped the bubble. The Federal Reserve, which controls interest rates is trying to maintain status quo during the flux but the market is trying to correct the poor investment of the cheap interest rates. When the Federal Reserve artificially lowers interest rates people and corporations are persuaded to take on a lot of debt and it works during an expansion but when the economy squeezes it puts a lot of financial pressure on the individual and the corporations. As the Federal Reserve continues to try to fight maintaining market status quo they will jeopardize the credibility of the dollar. If the credibility of the dollar is lost we could be heading into a recession or depression which is much more consequential than 2008 because we have a lot more debt now and rates are so much lower, hard to keep lower them without losing credibility.
The stock market usually works together with the real estate market. Stocks are immediate, adjusting in real-time. Real estate trends… usually following 4-6 months after big stock shifts. The reason behind the lag is that people see the stock market changing and fear is created, it takes time to accumulate behaviors that create the new data which in turn is the new trend. It can be the beginning of a downward spiral of real estate. Typically the higher you are on the price spectrum in your housing market the greater the corrections can be. It’s a game of musical chairs and at some point the music is going to stop and some people are going to lose their chairs. Do you wait out and see if it is going to get better or do you sell now before it gets worse, that’s the question people find themselves asking. The average unseasoned investor or consumer typically hangs on too long and gets burned. If you find yourself asking the question of whether or not it’s time to sell your house you already know there are many considerations and not always just financial. Watching the swings in the stock market is a good indicator of what direction things will swing in the housing market so you won’t get caught off guard months down the line as the economy levels the playing field.
Another interesting read from the Washington Post: https://www.washingtonpost.com/business/2020/03/09/market-crash-was-coming-even-before-coronavirus/