Effects of the Housing Market on the Stock Market

Housing. This was the preferred investment of many whether rich or poor for the past few years. However, as in anything else good times come to end. Many have made fortunes by taking advantage of low interest rates and loose lending practices. At the same times many have lost and may lose even more when the dust settles. In US housing market “bubble” started to give air in late 2005 and early 2006. Unfortunatly, investors and industry professionals become ignorant of the fact that it was not a loss proof investment. Builders continued to build vigorously as demand started to wind down. Now, I am sure, many of them hoped that they saw the signs earlier and weren’t as ignorant. Though housing downturn has not had a real effect on the stock market, it is definitely bound to happen and the longer it takes the harder market will fall. Interest rates are on the rise, lenders have tightened their lending practices and demand is very low, while supply has balooned to record highs. Because there is a lot of supply prices have started to come down and many investors still hold more than one investment property for which they have to continue to pay. Consumer, which has been another main driver of the US economy is feeling the effect. They notice that their low rates rose and now they have to pay much more than initially due to promotional periods expiring. Many will have to sell just to avoid bankruptsy and therefore will lose more than initial investment. Losing money will mean not spending as much as they used to and therefore other sectors such as auto, travel and retailers will suffer. Once the effects of the housing downturn spill full force into other sectors of the economy, financial markets will follow. The FED, which looks after economy can’t do anything at this point. They made it clear that they are fighting “inflation” and not concerned with growth. Too Bad! One day you’ll look at it and say: “wow, were we stupid or what?”