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Housing and the Stock Market

Posted by: Chris Palmeri on May 15, 2007

The slumping stock market used to be given as a reason for the great real estate boom. The dot-com bust soured Mr. and Mrs. America on stocks. And so they shifted their commission dollars from Merril Lynch to Century 21. In the past year though that trend has reversed. The stock market is roaring and housing is in a funk.

The National Association of Home Builders initially took some of the wind out of the stock market today, announcing that its index of builder sentiment had fallen back to its lowest level since the housing slump began last year. “Builders are feeling the impacts of tighter lending standards on current home sales as well as cancellations, and they are bracing for continued challenges ahead,” said association president Brian Catalde. But the stock market shrugged off the news. The Dow Jones Industrial Average closed at a record of over 13,400.

The National Association of Realtors also released some numbers today. The Realtors tried to put the best possible face on its results. “First-Quarter Metro Home Prices Stabilize” read the headline. In reality, existing home sales slid 6.6% in the first quarter. “It appears the worst of the price correction is behind us,” association president Pat Combs said. She was referring to the fact that more than half of 145 cities tracked showed price gains in the quarter. But nationally the median price of an existing single-family home fell 1.8% to $212,300 in the quarter.

The stock market’s gain seems to be housing’s loss.

Reader Comments

Frank LL0SA

May 17, 2007 12:59 PM

What about the herd effect?

Shouldn't people do the OPPOSITE of what everyone else is doing? Isn't that where the profit is?

I'm not saying that now is the time to buy homes, I just remember when 4 Taxi drivers pooled their money to buy a new construction and get "rich." I knew that was the time to JUMP out of that business!

Frank Borges LL0SA- Va Broker


May 18, 2007 3:51 PM

California is in a full meltdown. The foreclosures are now hitting the comps and auctions will be common by the end of this summer. CA homeowners will lose FAR more in this fiasco than they did during the dot com implosion and when the stock market acknowledges the magnitude of the housing crash (values will drop 40% or more in most areas of coastal CA and consumer spending will drop drastically), it will take a big dip too. Eventually, when median house price/median income reaches a sustainable level like 4, the housing market will recover. This will take 2-5 years.

Where's all the happy talk now, Chris? Are you still working for the NAR/CAR? I was trying to reach them and it seems their phone has been disconnected and their offices converted into a stripmall (same people in their pleasant blazers working there though)!

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BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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