A shadow looms over the housing market, and it’s cast by the golden child of this economic recovery: the stock market.
In 2013, the stock market fully recovered from the 2008 recession. At first glance, this looks like great news for everyone. After all, investors getting rich again means good news for employment and the housing market, right?
Not exactly. The stock market has done extremely well in this recovery – but without any support from employment numbers or per capita income. Not counting the population increase, California still requires 467,000 jobs just to return to pre-recession employment numbers as of December 2013. Per capita income across the state has barely caught up to 2008 income levels. However, considering the intervening inflation, we have yet to truly recover the income lost.
So if jobs and income aren’t the basis for the stock market’s success, what is?
Part of it is the money the Federal Reserve (the Fed) has been pumping into the economy since the recovery began, called quantitative easing. All this money — meant to be lent to consumers to boost spending — has been trapped at the top of the economic ladder. In other words, the rich have been getting richer while everyone else is just kind of hanging in there.
Therefore, the stock market’s continued rise is a bubble primed to pop. This is not unlike the current situation of speculator-inflated home prices which lack support from sustainable end user incomes. It’s only a matter of time before the inevitable crash — the one that no one participating in the frenzy sees coming.
When the stock market does crash, investors are expected to look to real estate as a more certain investment. Real estate is in fact real — you can see it and touch it, which offers a sense of security in the aftermath of a crash in intangible stock investments. Expect to see a rise in the number of limited liability companies (LLCs) and real estate investment trusts (REITs). Along the same lines, more investors means more business for anyone who can manage to sandwich themselves between investors and real estate. [See Volume 10 of the first Tuesday Realtipedia Forming Real Estate Syndicates]