Stock Market Crash - A Few Thoughts

by Osman Parvez

A stock market plunge may have unexpected consequences. At first glance, you may not think that yesterday's roller-coaster drop (+500 pt in the DOW) has anything to do with real estate.

Guess again.

Both primary and vacation home markets are affected by a downturn in the stock market. Primary home markets are supported by the job market. A strong stock market encourages new investment. In our region there are dozens, perhaps hundreds, of employers dependent on that investment capital continuing to flow. If institutional investors don't see an exit strategy... they won't be investing. Meanwhile, vacation home markets (such as in the resort towns in the mountains) are largely driven by wealthy baby boomers. Boomers won't feel very wealthy as their portfolios continue to decline in value.

Initially, you might be joyful knowing that crude prices continue to fall. Just remember that many local startup companies are "clean tech" or "green tech," driven by long term expectations of high oil prices. Today crude prices touched $92 in Asia, a massive decline from nearly $140 only a couple of months ago.

To the counterpoint, at the same time investors are zombified by a plunge in the DOW, CU is celebrating a $485 million research grant, it's largest in history. New technology and new companies will inevitably result. The virtuous cycle will continue. Meanwhile, Colorado continues to have about 1% lower unemployment than the national average.

Central to everything is how Fannie and Freddy will fare. The initial reaction to the government's takeover was a substantial drop in mortgage rates. But since then, rates have crept back up slightly as general risk and uncertainty have increased. Assuming that there is continued investor appetite for securitized mortgage products, rates could head somewhat lower. If the GSE's aren't able to place newly created mortgage securities because there isn't enough demand, rates will be headed upwards. That's something that could further slow the national housing market. The good news is that the first GSE placement after the government takeover was oversubscribed. But that was before yesterday's plunge.

As usual, stay tuned...

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The ideas and strategies described in this blog are the opinion of the writer and subject to business, economic, and competitive uncertainties.   We strongly recommend conducting rigorous due diligence and obtaining professional advice before buying or selling real estate. 

Please Note

This document contains forward-looking statements. You are strongly cautioned that investment results are subject to business, economic and other uncertainties. There are no guarantees associated with any forecast and the opinions stated here are subject to change at any time. Always consult your financial advisor before making an investment decision.