So the inevitable happened – the U.S. stock market corrected after questions about the questionable Chinese economy sparked a global selloff.
Over the past few trading days, the Dow, Nasdaq, and S&P 500 have all fallen by more than 10% from recent highs, the first time this has happened since 2011.
Everyone will tell you it was a long time coming, yet when it actually came, it still sent shivers down many a spine.
While everyone is generally freaked out, you might start to see some silver linings in the mortgage and real estate world, the most obvious one being lower mortgage rates.
Lower Rates, Sweet?
At first glance, most mortgage guys and gals will tell you it’s good news, that mortgage rates will be lower as a result of the correction that could eventually turn into a bear market (20% decline).
The basic reasoning being the flight to safety, otherwise known as dumping stocks in favor of bonds, which pushes yields down and interest rates along with it.
But how much are interest rates really going to fall from current levels? They were already pretty darn low. And is the decline enough to make up for your stock portfolio’s massive losses?
Conversely, the lower interest rates can be locked in today for the next 30 years, while the losses experienced over the past week will probably reverse and move higher during the next three decades. Except for the stocks that don’t make it out alive…
More Home Buyer Competition
If rates fall back to recent lows, that might add to the competition that is already overwhelming the overheated housing market.
Some folks may have lost interest recently, but with low rates making headlines again, there might be renewed interest.
While the low rates are undoubtedly good for those looking to refinance, prospective buyers might be forced to compete with a larger number of eager would-be homeowners.
Let’s not forget the Chinese either. Their stock market has crumbled, so they might be looking to park their cash in the United States, which is generally deemed a safer place to go when things get ugly.
They’ve already been buying real estate here, but they might increase those purchases as things deteriorate at home.
This just means even more competition – and they don’t care about low interest rates because they generally pay cash for the homes they acquire.
Will Home Prices Get Hit Next?
This stock market correction certainly has me wondering if home prices are next.
I think just about everyone watched the stock market climb back from its massive fall that corresponded with the housing crisis, wondering why it kept on rising.
After a while everyone kind of ignored the warnings of lofty valuations and kept buying in. Perhaps we got a bit ahead of ourselves.
Is the housing market the next shoe to drop, or is this just a temporary setback related to global growth concerns?
One can absolutely make the case for a home price correction as well, given how much property values have risen over the past few years.
Just surf on over to Redfin or Zillow and you’ll be able to see the meteoric rise of a given property’s value by scrolling down to the transaction history.
Most properties have appreciated by 50% or more in just a few short years, and home prices have reached new all-time highs in a number of states.
Sure, you have to account for inflation, but prices are still looking quite frothy as they have for some time. If the stock market is tanking and home prices are sky-high, well, I don’t know…even the California Association of Realtors is having trouble wrapping their heads around it all.
They recently said, “the significant disparity between what home buyers can realistically afford and actual home price is discouraging,” and they’re the ones trying to sell you a home!
Now before you freak out, take note that the best thing to do during a correction is nothing. Don’t panic, don’t sell, but don’t necessarily buy either. Just hold tight and do whatever you were planning on doing before this all came along. Just know the risks.