There’s no doubt 2016 is off to a rough start from plunging oil prices, to store closures and layoffs at corporate giants like Macy’s, to the turmoil in China. The Dow recorded its worst 4-day start to a year in more than a century in 2016 which begs the question – what impact will the falling stock market have on the housing market?
If buyers are planning on using cash from investment accounts and let their money ride in the stock market they may come up short in terms of a down payment or closing costs. Alternatively, some buyers might just have the jitters from all the bad economic news and feel it’s too risky to enter the market now.
So why did the market drop so quickly in early January? The U.S. stock market used to react mostly to news about our country. The Dow Jones and the S&P indexes are composed of mostly U.S. stocks. So do we all live in China now? Why are indicators like the Chinese manufacturing index and the value of the Chinese Yuan inflicting huge drops in the U.S. stock market? And when the Chinese stock market halted just after being open for 30 minutes in one session the first week of January it threw the U.S. and European markets into a tailspin!
As we reported last month in our story Foreign Money Finds Home on the Range Leaving California Behind Chinese nationals are the top group of foreign buyers of U.S. homes. For the first time, Chinese have overtaken Canadians as the biggest foreign purchasers of U.S. property by total number of transactions, accounting for 16% of sales to international buyers in the 12 months ending March 2015, according to the National Association of Realtors. So the Chinese have invested significantly in our RE market.
However, it’s important to keep in mind that the stock markets don’t always reflect real economic performance and there is a lot of good economic news despite the recent market plunge. The U.S. economy will probably grow around 2.5% this year, which is a sustainable pace that seems nowhere near overheating. Additionally, American homeowners have recovered nearly all the equity lost during the housing bust. Overall net worth, which also includes financial assets, is close to record levels. So, maybe this recent plunge is just a correction and not the beginning of a crash.
What impact do you think the stock market will have on your business? We’d love to hear from you!
You can find more information about the market selloff here: