‘This is Not a Bubble’: How Stocks Affect the Housing Market

Despite a recent dip in the stock market, changes are not likely to aggravate another housing bubble. In fact, they may signify a slowdown in climbing home prices.

MarketWatch points to a number of differences between conditions today and those before the 2008 crash, including absence of home builders building en masse on spec. The changes in today’s stock market could instead signify that the steadily increasing housing prices might soon slow down. Stock markets tend to drop when interest rates go up, and rising interest rates could in turn have a cooling effect on bidding wars and ensuing price climbs.

“This is not a bubble,” said Joseph Kirchner, senior economist for Realtor.com. “A bubble happens in the housing market when builders are irrationally building houses on spec when demand is falling or when buyers are seeing prices are going up and can’t really afford to buy but do so because they figure they can build up equity quickly.”

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