Will recent stock market scares create a new surge in real estate investment?
In August 2015, the stock market proved just how volatile and uncertain it can be. In spite of warning signs, many kept using stocks as the ‘easy’ option to invest. Even though many company’s stocks trade for ridiculous sums, people kept buying in. In a single day, the stock market saw $1.4 trillion in wealth eliminated. That was a Friday. When markets opened the following Monday, the market lost another trillion dollars. A single investor lost close to $4 billion in those couple of days. What’s ironic is that stocks really haven’t been delivering any amazing returns in recent years. Most may average a 5% to 10% return over the long haul. People can sometimes find close to those returns on certificates of deposit, with less volatility. Then there is real estate, which can offer better growth and yields, with even less downside. Hopefully millions will heed the warning and adjust their investments accordingly.
Volatility
Everything may fluctuate over time: the value of properties, the value of companies, and even the value of the dollars in your wallet are all subject to change. The difference is that some things are more volatile than others. Some fluctuations are more predictable than others. It’s pretty easy to forecast real estate changes, and they are slow to move. Stocks, on the other hand, can plunge unexpectedly in a matter of hours. They lack the safety of physical properties. It is interesting to note that even in the lows, real estate can keep on throwing off almost the same amount of cash flow.
It’s Time to Freak Out and Sell Stocks
As the smart money exited the stock market and numbers plunged into the red, the headlines said not to panic or sell. That clearly means it was time to panic and get out for many. Depending on when you are reading this the market may have clawed back a few points, or dipped further. It’s smart to remember that little uptick before the real dive, and that these declines can go a lot deeper and longer than anyone likes to believe. There is no question in any analysts’ minds that the stock market is headed for a massive ‘correction’.
The Fundamentals
Economic fundamentals are better than most realize. The stock market just isn’t wired into them like it used to be. There has been incredible (often unfounded) optimism driving stocks. Yet, there is a lot going for the American economy. Many people have gone from earning less than $10 an hour to a $15 an hour minimum wage. Taxes and living costs are up, but there could be changes coming. The tremendous traction in startup activity, venture capital funding, increased savings, low interest rates, and a huge portion of the population becoming self-employed all means many Americans are in a far better financial position than they were eight years ago. Yet, this is hard for antiquated indexes to track. Stock markets flinch at unemployment figures. Yet, how do they know if 60% of the population are actually in their peak earning years as entrepreneurs, real estate investor, small business owners, and freelance consultants? These fundamentals are all great indicators for a strong and growing housing market. As mortgage lending continues to loosen up, and becomes friendlier for self-employed borrowers, real estate is only likely to get stronger.
The NAHB index kept pushing a nine year high in August 2015, showing that home builders are more confident than ever that there is a demand for their product. New building helps push up the value of all real estate, creates jobs, and increases local spending further. The bottom line is that this is a smart time to reduce exposure to stocks, and increase security in real estate. The sooner individuals make the move, the less they stand to lose in volatile markets.
