{"id":105979,"date":"2019-08-21T05:00:31","date_gmt":"2019-08-21T11:00:31","guid":{"rendered":"https:\/\/www.biggerpockets.com\/renewsblog\/?p=105979"},"modified":"2021-03-16T14:52:01","modified_gmt":"2021-03-16T20:52:01","slug":"real-estate-stock-market-investing-differences","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/real-estate-stock-market-investing-differences","title":{"rendered":"Should Real Estate Investors Sleep Soundly Despite Stock Market Scaries?"},"content":{"rendered":"<p>Scared about the recent stock market roller coaster? I\u2019m not. In fact, I sleep like a baby regardless of what the market is doing. I <em>am<\/em> a boring real estate investor after all!<\/p>\n<p>Previously, I explained why <a href=\"\/renewsblog\/why-stock-market-swings-dont-scare-re-investors\/\" target=\"_blank\">real estate investors<\/a>&#8216; response\u2014or rather, their lack thereof a response\u2014to market swings tends to be vastly different than <a href=\"\/renewsblog\/6-life-lessons-school-of-hard-knocks\/\" target=\"_blank\">speculators<\/a>&#8216; response.<\/p>\n<p>But I realize some of you may still be wondering, \u201cWait! Isn\u2019t there a connection between stock markets and real estate prices? Don\u2019t they both fall simultaneously at times? And shouldn\u2019t we be afraid of that?\u201d<\/p>\n<p>Great questions.<\/p>\n<p><iframe loading=\"lazy\" src=\"https:\/\/www.youtube.com\/embed\/eaPQO2tfuv4\" width=\"560\" height=\"315\" frameborder=\"0\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/p>\n<p>According to Richard Barkham, global chief economist and head of Americas Research for CBRE, real estate investors should not be worried about <a href=\"https:\/\/view.cbrecommunications.com\/?qs=ac4aefca061147009fd72c1bc90b8626f5261526266b0da71dee23c02e48180b7fb49b428cf779bb3ab1c9eacc22c543021df82eb738e6c50205022b8a097b27c6e33ba4edca411100c9b7fdc984bade\" target=\"_blank\" rel=\"noopener noreferrer\">2018\u2019s dismal performance in world stock markets<\/a>\u2014unless policymakers overreact.<\/p>\n<p>\u201cThere have been two instances in the past 30 years\u20141987 and 2000\u2014where large stock market losses have come out of the blue at a time of robust economic confidence and low inflation,\u201d Barkham wrote in an analysis\u00a0with CBRE co-researcher Wei Luo, senior analyst of Capital Markets.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-106454 size-full\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/01\/CBRE-chart.jpg\" alt=\"stock market drops, property market booms\" width=\"702\" height=\"507\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/01\/CBRE-chart.jpg 702w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/01\/CBRE-chart-300x217.jpg 300w\" sizes=\"auto, (max-width: 702px) 100vw, 702px\" \/><\/p>\n<p>Barkham goes on to point out the results of Black Monday (Oct. 22, 1987), where the Dow Jones Industrial Average (DJIA) dropped 22 percent.<\/p>\n<p>I distinctly remember that I was sitting in my MBA class at Ohio State when I learned it had happened. I would have been oblivious if my professor, a typically calm British chap, hadn&#8217;t seemed so alarmed.<\/p>\n<p>Black Monday occurred at a time when the world still hadn&#8217;t gotten over the economic horrors of 1979 to 1982, when interest rates topped out at 18.5 percent. Imagine buying a home and paying over 18 percent in fixed mortgage interest!<\/p>\n<p>Your monthly payment on an $82,500 home (the average cost in 1981) would have been north of $1,000. That&#8217;s over $2,500 today if adjusted for inflation! (And don\u2019t forget to add taxes and insurance.)<\/p>\n<p>That being said, please don\u2019t complain too loudly when mortgage rates hit 5 or 6 percent, my friends.<\/p>\n<p>Post-Black Monday, governments responded by lowering interest rates and increasing government spending. This led to a housing boom&#8230; followed by a crash, according to Barkham.<\/p>\n<p>CBRE&#8217;s analysis also brought up what happened in the wake of the dot-com bust. The DJIA lost 27 percent of its value in the first three quarters of 2002 alone. There was a mild recession in many economies, too. However, as this graphic shows, real estate remained relatively unscathed.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-106455\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/01\/CBRE-chart-2.jpg\" alt=\"CBRE, recession, real estate market\" width=\"702\" height=\"507\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/01\/CBRE-chart-2.jpg 702w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/01\/CBRE-chart-2-300x217.jpg 300w\" sizes=\"auto, (max-width: 702px) 100vw, 702px\" \/><\/p>\n<p>What were you doing those years?<\/p>\n<p>I was <a href=\"\/renewsblog\/2014\/01\/07\/flipping-houses\/\" target=\"_blank\">flipping houses<\/a>. This was before it was cool. Back then, the word &#8220;flipping&#8221; was only used when talking about coins, pancakes, and birds. My buddy Jack and I were having the time of our lives doing it though, and our business was entirely unaffected by the bursting of the dot-com bubble!<\/p>\n<p>But what about the connection between the market and real estate prices during the Great Recession? Did the stock market crash cause housing prices to drop in 2008?<\/p>\n<p>I think it\u2019s important to look at cause and effect here. Although we could call attention to dozens of issues, I&#8217;ll avoid turning this into a detailed analysis. I only want to make one point: the housing crash was not the direct result of the stock market crash.<\/p>\n<p><em><strong>Related:\u00a0<\/strong><a href=\"\/renewsblog\/perfect-economic-storm\/\" target=\"_blank\">A Perfect Economic Storm Has Homeowners Staying Put &amp; Would-Be Buyers Sidelined<\/a><\/em><\/p>\n<p>In the mid-1990s, the U.S. government (in its great wisdom) decided that anyone who could fog a mirror deserved to own a home. Washington mandated new mortgage qualification rules, and banks complied. Almost anyone could buy a home with little or no money down.<\/p>\n<p>No job? No problem!<\/p>\n<p><a href=\"\/renewsblog\/2015\/07\/29\/invest-real-estate-bad-credit\/\" target=\"_blank\">Bad credit<\/a>? That&#8217;s fine.<\/p>\n<p>Tell us your salary\u2014no income verification&#8217;s necessary. We&#8217;ll believe you!<\/p>\n<p>No cash for a down payment? No money for closing costs? Just let the seller bump up the price. That should cover it!<\/p>\n<p>Unsurprisingly, homeownership shot up. In 1995, the percentage of homeowners hovered in the mid-60s\u2014just a percentage point or two above the historical low of 62.9 percent in 1965. But less than a decade later, rates topped out in 2004 at a record of 69.2 percent!<\/p>\n<p>A friend of mine bought a $600,000 McMansion <em>second home <\/em>in the town where he grew up. He wanted to show off to people who bullied him as a kid. Here&#8217;s the kicker: he was only earning $45,000 a year!<\/p>\n<p>We all know what happened next. The McMansion guy made only one or two payments before the <a href=\"\/renewsblog\/2013\/03\/22\/how-to-buy-a-foreclosure\/\" target=\"_blank\">bank began foreclosure proceedings<\/a>.<\/p>\n<p>Sadly, that process was repeated across the fruited plain.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-106477\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/01\/Paul-Moore-chart.jpg\" alt=\"home ownership, stock market, renters\" width=\"702\" height=\"520\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/01\/Paul-Moore-chart.jpg 702w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/01\/Paul-Moore-chart-300x222.jpg 300w\" sizes=\"auto, (max-width: 702px) 100vw, 702px\" \/><\/p>\n<p><em><strong>Related:\u00a0<\/strong><a href=\"\/renewsblog\/america-renter-nation\/\" target=\"_blank\">Why America Has Ditched Homeownership to Become a Renter Nation<\/a><\/em><\/p>\n<p>Homeownership plummeted from 69 percent to a 48-year low (but more normative) 63 percent. What&#8217;s more, a million new renters entered the market for every percentage point drop in homeownership (per <em>The Wall Street Journal<\/em>\u00a0in July 2015).<\/p>\n<p>Thus, a new <a href=\"\/renewsblog\/2013\/04\/09\/how-to-buy-a-small-multifamily-property\/\" target=\"_blank\">multifamily<\/a> boom was born! So was an awesome website and community called BiggerPockets. (Those are stories for another day, though).<\/p>\n<p>My main reason for detailing the effect of these three market drops is to call attention to the fact that real estate investors don\u2019t have to panic when they hear bad stock market news. We also needn&#8217;t be jealous when we learn about our friends making great returns from stocks.<\/p>\n<p>Many of us were tempted (and some succumbed) when Bitcoin&#8217;s value skyrocketed a few years ago. But we\u2019ve discussed this before. I\u2019m done with speculating on assets that have no determinable underlying value.<\/p>\n<p>Real estate investing, when done in a strategic and smart fashion, is one of the most reliable and predictable sources of wealth generation and perpetuation on the planet. I\u2019m not knocking our brethren in other market sectors. But this is where I\u2019m hanging my hat, and I encourage you to join me.<\/p>\n<p><a href=\"https:\/\/www.biggerpockets.com\/webinars?utm_source=newsletter\" target=\"_blank\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-91217\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/08\/blog_ads-01.jpg\" alt=\"\" width=\"700\" height=\"85\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/08\/blog_ads-01.jpg 700w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/08\/blog_ads-01-300x36.jpg 300w\" sizes=\"auto, (max-width: 700px) 100vw, 700px\" \/><\/a><\/p>\n<p><em>What&#8217;s your take on investing in real estate vs. the stock market? How worried are you about recent stock market fluctuations?\u00a0<\/em><\/p>\n<p><strong>Leave a comment below.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Is there a connection between stock markets and real estate prices? If stock prices plunge, does the value of real estate follow suit? And shouldn\u2019t we be afraid of that? Real estate investor Paul Moore explains.<\/p>\n","protected":false},"author":214608,"featured_media":114673,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[5528],"tags":[],"class_list":["post-105979","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-real-estate-news"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/105979","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/214608"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=105979"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/105979\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/114673"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=105979"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=105979"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=105979"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}