The Impact Of Stock Market Crashes On Real Estate
By Paul Esajian on August 28, 2015
What effect do stock market crashes have on the real estate market?
In mid-August 2015, we saw one of the single worst days for stock markets in years. The stock market lost over $1.4 trillion in value in a single day. News media said it plunged even the wealthiest investors into ‘no man’s land’. Yet, looking at the facts, it was really just a little over a 3% drop. Analysts have been calling the market 60% over valued for a long time. When markets ‘correct’ themselves they normally far over correct too. Sadly, too many investors had dragged their feet on pulling out. Still, the bottom line is that there is a long way to go down before things bottom out. Whether that happens over the next week, or in 6 months, it is going to shake up all markets a lot.
Running Scared
Not every stock market investor is going to be feeling the panic yet. But they all will eventually. This includes financial advisors, and the wealthy. There is little if any protection from the downside in the stock market. So where will they run for safety? Oil has hit an incredible low and there are many reasons it will bounce high any time soon. Leading financial gurus say gold’s days are up too. That pretty much leaves real estate as the bastion of safety everyone is craving. It doesn’t get much safer than land and bricks and mortar.
The Need for Yield & Growth
Safety is better than losses, but it isn’t enough. There is really no such thing is staying still. Even cash under your mattress is constantly being devalued. At a minimum investors must stay ahead of inflation, and taxes. Many are also counting on their investments to grow and produce income in order to one day cover retirement. That’s if they don’t need the passive income now. So investors won’t just be parking their dollars in any old wealth haven. They have to look for income producing and appreciating properties and investment opportunities. It’s a need, not a want.
Limited Capacity
The downside of the stock market crash is that even though it drives demand for real estate, it also limits the capacity of those fleeing stocks. If you’ve just lost $100,000 in savings, and your income is tighter, you may be highly motivated to move into real estate, but you’ve got less slack, and you certainly want to be confident in moving your money. On a broader scale it’s worth noting that this can impact retail and consumer spending, and narrows what investors will invest in.
House Deals
Those that have been relying on stocks a lot may even be highly motivated to sell off some homes, shed vacation and second homes, and cancel new home contracts. This isn’t wide spread, but it can deliver some very attractive deals for real estate investors. Look out for these motivated sellers and opportunities.
Advantage to Smaller Investors
This is one of those great moments when smaller more agile, and individual investors can have a great advantage over big funds and REITs. Homes and rental homes in particular where is at, giving faster moving small investors a double edge when REITs and big funds are already reeling. Don’t miss this opportunity to pick up the slack, pick up the pace, and make some great plays.
Activity
The one thing that a stock market dip virtually guarantees for the real estate market is lots of activity. That translates to property higher prices, and faster marketing times, but also to great deals and opportunities for investors. Do not miss out on this window of opportunity to flip houses, secure great prices on prime properties, to get ahead of the curve on rentals, and to grab some market share. There will be an even greater surge ahead, and the more you can dominate now, and fatten up your marketing and acquisition war chest the more you’ll be able to catapult results as the real estate market moves into its next phase of growth.