Thursday was one of those days that will go down in stock market history.
I was working at my desk and, as I frequently do, had a TV tuned to MSNBC yesterday afternoon. So I witnessed the horrifying plunge of the Dow Jones Industrial Average by nearly 1,000 points and then it’s partial recovery in second and minutes.
Although I’m no economist, I don’t see why it would be foolhardy of me to make one prediction for when the New York Stock Exchange closes today:
The Dow will be lower than at the opening.
What these developments mean for the tenuous recovery of the housing market cannot be good. In fact, what happened yesterday and what will happen today are disastrous developments–no matter where the Dow ends up later on, even if it tops 11,000.
Get ready for a rough slide for the housing market. (Flickr photo by caitlinburke)
As the DJI plunged yesterday, consumer confidence had to have plummeted right along with it. The growing sense of security that prospective buyers obviously have felt now has hit the third rail of Wall Street’s selloff, which undoubtedly jolted them right out of the housing market.
Forget about those buyers who have a choice about moving. And forget about those sellers who are contemplating the possibility of taking inventory out of the shadows. They know what’s on buyers’ minds.
I don’t see how the housing market will not be moribund at least until fall. The tide of unrealistically rising prices will recede. In Manhattan, where Wall Street’s woes excessively affect our mood and economy, we’re headed for a big stall and a second bottom–with luck, only briefly.
So much for the spring surge.
It was only this week when a headline that I wrote for a post asked whether the bottom of the housing market had arrived. I declared that it had. But I also made clear the possibility that macro circumstances could bring us another bottom. Here’s what I said:
We have reached–and passed–the bottom of the current market.
The key word here is “current.” I definitely am not saying that we won’t bottom again. There persist macro uncertainties such as mortgage rates, thought to rise to around 6 percent by year end, foreclosure issues, the shadow inventory, unemployment and, among other things, the global economy. Any of them could sink our housing market again.
Perhaps it’s rash of me to make predictions, especially since my background in economics is shallow, indeed (though once I was a communications VP for a Wall Street investment bank).
But I think that, unfortunately, I must be right. How I wish that I will be proved wrong.
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Malcolm Carter
Licensed Associate Real Estate Broker
Senior Vice President
Charles Rutenberg Realty
127 E. 56th Street
New York, NY 10022
M: 347-886-0248
F: 347-438-3201
Malcolm@ServiceYouCanTrust.com
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I, on Cambodia 
Malcolm,
Check the papers this morning and see what the so-called “experts” are saying. The EU and ECB made a huge policy shift that is supporting sentiment in all global markets.
In fact, I never listen to economists who are quoted in the press. I know that business well. When something bearish happens, the editors tell reporters to get bearish comments from economists. Those are the ones they print. They do not print the economists who are not bearish on those days except throwing one in at the end to give supposed “balance” to the report. The same thing happens when something bullish comes out. They print bullish comments. You can also see this on CNBC. They’re all followers of the price action in the market. Bearish when the market sells off. Bullish when it rallies.
As I originally consoled, take a deep breath. It is too early to judge, but, in my opinion, the US and global economy is still in the early phase of a major economic recovery. Anyone who paniced last week and sold their apartment at the bid or any buyer who pulled out of a promising deal may regret their decision.
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Fair enough. The fact is that nobody knows with certainty what the future holds. I agree that this is a setback for sentiment and some people will pullback. The same happened after 9/11, which was a rational response to the situation. My main point is that the bigger economic cycle is still firmly in place. This economic recovery is still young and has much further to go. Those who react to the fluctuating sentiment in the financial markets will no doubt become more cautious and that will cause a pause in the budding recovery of real estate in NYC. I grant you all those points. But I still maintain that it is the bigger trend that will ultimately drive this real estate market.
One thing that concerns me is the current debate in Congress on financial regulatory legislation. Unlike Greece, the uncertainties around potential regulatory overkill is more important for NYC real estate. Our “representatives” in Washington are doing very little to protect the interests of their constituents, many of whom work in the financial industry.
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I think you need to take a deep breath. The slide in equities was triggered by concerns over Greece. Central banks will keep interest rates very low while there are such concerns, which is similar to what happened during the Asian Currency Crisis in 1997.
Greece is important for Europe, but it will not bring down the entire global economy. The US is still early in its recovery cycle, which has much further to go. Just like the Asian Currency Crisis resulted in lower rates for a longer period — which was good for the economy — the same likely is to happen with Greece.
For buyers, this is a great opportunity. If others get scared and pull out, then that is less competition. Malcolm, you admit to not being an economist or economic prognosticator. Those who understand why the markets sold off this past week would likely console you to relax and not jump to conclusions. I’m one such person.
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Brandon, I continue to appreciate your comments. But I contend that you don’t have to be an economist to read and understand economists such as those quoted in today’s New York Times. My point in Friday’s post was that emotions prevail. How else to explain a DJI that went above 16,000 or, for that matter, the housing boom (with all of its underlying causes)?
Certainly, the plunge on Thursday was anomalous, but it’s hard for me to see how it didn’t magnify concerns that investors in securities and buyers of real estate already were experiencing about the global economy and Greece’s impact on it today and in the future.
I have observed how little it takes for skittish buyers to fall off either side of the fence of their hesitation–to take the risk and buy now, whenever “now” is, or postpone a purchase until they feel more secure about their financial position. So, even if your analysis is correct about Greece and the opportunity you perceive, buyers usually demonstrate an irrational view of the markets. Heaven knows, I’d love for them to agree with you.
That said, I do plead guilty to writing perhaps–how to put it?–more colorfully than was warranted.
I haven’t asked my buyers how the stock market’s volatility has affected them, but I plan to check with them, some real estate attorneys and some brokers soon to learn and write about what they are hearing. One lawyer told me yesterday that a client of his who was considering a major real estate purchase has now pulled back. Whether and how quickly the client might change his mind is unknowable.
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