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Should Stock Market Volatility Trigger Concern for the Real Estate Market?


Wow! Has the stock market been scary lately or what?

Along with the volatility there, people think all of their investments are equally volatile. Some people are making it seem like a sky is falling scenario where everything is losing value equally and dramatically. Real estate may get caught up in this hysteria. Let’s take a look at where we’re really at and figure out if we’re about to have another down market in Real Estate.

Financial advisors have been warning us for months that the stock market was ripe for a “correction.” Experts have been questioning the value of alternative currencies for over a year.

In contrast, here are the opinions of three major pundits in the residential housing market:

Ralph DeFranco, Chief Economist, Arch Capital Services Inc. says. “It’s premature to worry about a housing bubble. The typical warning signs – excessive debt levels, poor quality loans, exponentially increasing home prices, rising vacancy rates and/or poor affordability compared to the past, and a high number of internet searches on house flipping – are not present.”

Liu-Down, Genworth Chief Economist, says, “My thoughts on many recent discussions of ‘housing bubble’ – the bar for a housing bubble is higher than just prices being above some fundamental value. There must be widespread behavior change as well, such as higher levels of fraud and speculation.”

The Fitch Report commented “US home prices are on track for a 5% nominal gain for the fourth consecutive year, returning national prices to their highest level since 2007. The growth has been driven by historically low mortgage rates and unemployment plus solid population and personal income growth rates…a meaningful correction should only be triggered by an unexpected economic shock.”

So what’s the bottom line? Speculation has driven certain markets over the last year. However, it has not been speculation, but instead people’s desire for homeownership, that has driven the real estate market.

While housing prices have been increasing by 5 to 7% year over year for the last three years and we are, in most markets, back up to the pre-depression prices, we’re not looking at 2006 dollars. The recent modest inflation still needs to be considered, so at least in the west Michigan market, we have a significant way to go to be over-priced.

The present low inventory and more demand than supply should mean that prices will continue to go up. The interest rate is also finally starting to increase incrementally. Though the rate today – about 4.85% for a well-qualified buyer with 20% down payment – is considerably higher than the 2.75 to 3% we got used to over the last few years, we only have to go back 15 years to when the average was 7% or 20 years to the double-digit rates of the 1990s.

That, all put together, makes owning real estate one of the best possible investments and one of the most sure ways to financial independence and stability. It is certainly time to invest in yourself if you aren’t already a homeowner!

Nancy Bierenga, of élan Realty, is past president of the West Michigan Lakeshore Association of REALTORS®, a member of the National, Michigan, and West Michigan Lakeshore Associations of REALTORS®, and the Greater Muskegon Woman's Club. She is an Accredited Buyer's Representative, a Certified e-Pro REALTOR®, and a Certified Fair Housing REALTOR®. She and husband Robert have lived in Muskegon since 1996. Phone Nancy at (231) 730-0887, email, stop by élan Realty's office at 4075 Airline Rd., Muskegon or visit the élan Realty on Facebook here.

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