Remember 2008? The market decline was precipitated by the collapse of Real Estate. The ripple effects of declining Real Estate were (and are) widespread.
– Homeowners lose equity (and their Home Equity ATM)
– Defaults rise
– Foreclosures increase
– Banks balance sheets get hit
– Banks fail- Distressed Real Estate sales crowds out legitimate sellers;
Stock investors need to pay attention to Real Estate. Forget about R/E getting back to the 2000 – 2004 levels or activity for years.
The impact of a double dip, or continuation of Real Estate’s decline, could be more than just economic. It can bring investor/consumer confidence down. Declining confidence has been the downfall of many markets.
Robert Shiller (of the Case Shiller Housing price index) has stated that he expects to see housing fall an additional 25%.
Once real estate bottoms, whenever that is, it does not mean a return to the housing heyday of 2005. Many of the factors that contributed to the housing bubble are no longer available. Easy credit, cooperative appraisers, and loose application rules no longer exist.
So even if, and when, the housing market stabilizes, don’t expect to see a boom. It just isn’t going to happen.
This means that one of the forces that drove the stock market from the low in 2002 to its peak in 2007 will be missing.
So far we attribute the stock market’s bear market rally from the low in 2009 to the liquidity that the Fed is pumping into the system. Housing is not there to take the baton from the Fed and keep the stock market going.
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