As the global stock markets continue their bumpy ride of the past few weeks, those in the housing industry wonder what it all means in terms of a housing market that is just now showing signs of stability and recovery. The Wall Street downturn has shown that China’s economic engine has its own weaknesses and as with all economies, may need adjustment from time to time. At the same time, the strength of the U.S. economy is being showcased. While the recession is still relatively recent, it is clear that the U.S. fundamentals are returning to a position of strength, particularly in areas such as employment and investment.
Housing has also continued its recovery. Yet in some areas where the number of foreign investors is higher, there is a potential for a sudden sell-off. After all, if these foreign investors decide to sell off their purchases, it could leave a glut of inventory in areas where they have been particularly active. However, the overall share of the housing market controlled by foreign investors is only about eight percent.
The U.S. treasuries will actually see a benefit, as people continue to invest heavily in these treasuries. Since affordable housing interest rates are typically reliant on these treasuries, it could have a positive effect on affordable housing in the long term.
Wall Street impacts people’s decisions to buy their homes
While the average homeowner will not see a large impact on housing based on the Wall Street’s directly, a sense of unease can still flow to potential homeowners. “The stock market definitely impacts people’s decisions to buy,” said Bill Gassett, a real estate agent at Hopkinton, Mass.-based RE/MAX Executive Realty. “People are not as comfortable when looking at their stock portfolio declining at a significant value.”
Others argue that the effects of the downturn in the Chinese economy have yet to be felt fully by the housing market. Interest rates have plunged, yet there has not been a significant increase in activity in the housing market as might normally be expected. “We have no indication yet what effect it will have on home sales,” said John Councilman, president of NAMB—The Association of Mortgage Professionals and president of Fort Myers, Fla.-based AMC Mortgage Corporation. “It has been good for interest rates, but not as dramatic as the plunge would normally indicate. One must question the Federal Reserve raising rates in September unless stocks revive quickly.”
The Federal Reserve has not indicated that they are revising their decision to raise interest rates in September based on the strong U.S. fundamentals. Still, the Fed has kept their options open, so rates may not be allowed to rise much in response to the current global conditions.
Still the stock market’s plunge does not necessarily mean that the global economy is headed for another recession at this time. Again, much of this discussion of Wall Street’s effects revolves around the fundamentals of the U.S. economy and their ability to weather these global changes. Currently, the long term effects of China’s economic moves are still to be seen.