The stocks markets have been registering lots of volatility over the years, and this scares many investors a lot. This kind of panic among investors all around is bound to have great effects on to other industries too. Although there aren’t any complaints in the housing market about the same, they fear these effects are going to reach all the way deep into real estate investment too. Some things in the stock market would affect the housing market directly.
Financial Institution’s Interests And Lending Rates
The stock and the housing markets get into direct relationship through the credit people have to take up when buying homes. As most people wouldn’t afford full amounts at once, they have to pay a portion then approach their banks to cater for the rest through the credit program. Depending on the investment time and the health in domestic economies, the interest rates in these can either go up or down. The good and safe situation is when there is low volatility. Banks at this point have confidence in the borrowers and their capability to repay their loans and hence, they lower the interest rates. The high volatility in the markets on the other hand only proves uncertainty in the market; hence the banks increase their interest rates. All these changes are brought about by the increase or lowering of the stock market.
Encourage Investors In The Housing Market
There is another key correlation between the stock market volatility to an investor’s decision in investing. When the figures at the stock market go up, they encourage investors and more so people that would love to buy a home also do so then. When these figures fall, they make investors pessimistic and fearful of investing then. This is a good example of how stocks directly affect the housing market. An investor buying a home when the stock market indexes are going up can be taken as an asset that would even earn you more cash if sold off but the same bought during the low stock season feels like a liability. As the above effects take place in property buyers, there is a significant amount of such effects in the sellers too. By studying the stock markets, they would know when bets to advertise and sell their properties and when to hold back and wait. The banks as well determine their interest rates on mortgages by studying the stock market.
Demand And Supply Of The Houses Don’t Balance
The variation in the stock markets might create what investors call a housing bubble. This is a situation where builders keep building as many houses as they can, but the buyer’s demand keeps falling. Even though in falling stock markets, the interest rates are normally going up, there could be a remedy to all of this. When there are so many unsold properties compared to the number of prospective buyers, the lenders in this situation would have to change their policies and offer better terms to attract buyers. If the number of prospective buyers was higher than the properties in the market, the interest rates would have to go up to maximize the profits.
Huge Down Payments Required From The Prospective Property Buyers
When there is high volatility in the stock markets, the buyers are forced to pay up huge down payments before the financiers can approve the buyer’s mortgage request. This could be because of the low-interest rates getting charged at that time. However, the increase in interest rates discourages the taking of mortgage loans by the housing market investors. In this situation, many would rather look for funding from other sources, for instance, selling their assets. The stock market also affects this situation as well. In such a situation, the value of the property drops due to bad economic times and hence making it all hard again to sell assets and come up with enough equity to buy an investment property.
As the reasons above clearly state, it is true to say stock markets determine every move in the housing market industry. The prospective buyers would want to wait until the stocks re to his/her favor so that to make a profitable investment. The seller and the general property owners also study the market to make sure they also make profits after selling off their houses. The bank s and the financial institutions study the stocks as well so that to determine the amount of interest to install on any particular mortgage loan. They study the stocks also to determine the capability of the buyers to repay all their loans.