When analyzing recent history, there seems to be a correlation between Real Estate prices and the Stock Market. After real estate prices started their downward spiral in 2007, the stock market lost over 50% of its value in 2009. Real estate prices responded by dropping nearly 50% from their highs in 2005. Conversely, once stock market prices began their ascent, real estate prices also began to recover. Finally, since 2011, both the stock market and real estate markets have both experienced price appreciation.

Will the same correlation continue if the stock market enters a bear market?  It’s a valid question. For over 25 years, one of the leading stock market analysts, Robert Morrow has used a theory he calls “Vibration Analysis,” to predict major moves in the stock market. He has received notoriety for his uncanny predictions of the Dow crashes in 1990 and 2007.  Contrary to the belief by many experts of continued growth this year, Morrow believes that a Bear Market is imminent, based on daily closing prices. His prediction implies of drop of 20% or more in the market.

If this were to happen, would the Real Estate Market suffer another correction?  It’s certainly possible. Consider the major impact such a drop would have:

1. When the stock market drops in value, it impacts the net worth of all investors. This is particularly true with affluent clients that purchase luxury real estate.  The loss of value in the stock market has a direct impact on discretionary spending by investors. They tend to pull back on second or third vacation home purchases when their net worth declines. A bear market could significantly impact the purchase of homes in vacation markets such as Florida and The Jersey Shore, especially for higher priced properties.
2. There is another issue to consider. The “Wealth Effect” also has a direct impact on consumer sentiment. If the stock market were to enter a Bear Market, it would have a direct and adverse impact on consumer confidence. This in turn, could stunt the demand for real estate purchases. The impact on real estate prices would likely impact all prices points, especially in vacation, resort and seasonal markets.

 

Why should this be important to home sellers?   If consumers lose confidence or even worse, if their net worth drops, we could see a correction in prices. For many sellers who have been holding out for higher prices, they may have to plan for a long drawn out recovery. In either case, a Bear Stock Market spells trouble for real estate sellers!