Does anybody understand why the stock market is way down and mortgage rates are going up? I thought since the housing market has slowed down, mortgage rates would go down.

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nybody understand why the stock market is way down and mortgage rates are going up? I thought since the housing market has slowed down, mortgage rates would go down.

The Fed just increased the Fed Funds rate. That is the simplest explanation.

Also, the stock market isn't way down. We hit record highs in the last couple of weeks. Look at 5, 10 or 15 year chart of the S&P. Recent pullbacks are tiny when viewed over the longer term.

The Fed is pushing the rate up. This in turn drives up mortgage cost and slows the housing market. It also impacts other businesses. Rate manipulation is the primary tool used to manipulate the economy. When things are stagnant they lower the rates to spur growth. When the economy is booming they raise rates to slow growth to prevent inflation.

Has the housing market "slowed?" That's not the term I would use. Around here, and in much of the country as I understand, there isn't enough housing to meet demand, and contstruction is nothing if not practically booming. I'd say housing is a hot commodity.

To say it slowed, would mean to me that there was excess housing and low demand.

Mortgage rates are up because the fed raised rates, plus the afformentioned housing demand.

As far as the stock market being "down," it's been at record highs, and wait 20 minutes and it'll recover...

The economy is strong, housing is in high demand, I would call recent reported losses in the stock market a blip. It'll probably go back to climbing.

Or not. I'm no financial analyst.

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Originally posted by matai:
Does anybody understand why the stock market is way down and mortgage rates are going up? I thought since the housing market has slowed down, mortgage rates would go down.

'Way down' is a bit of a misnomer. "A 3% drop from near record highs" might be a better description of yesterday.

To go to your question though, interest rates can have a big impact on the housing market, but not always vice-versa.

Reason being the housing market is only one use for debt. Think governments, businesses, personal purchases, college, new cars, credit cards, etc.... Lots of borrowing has nothing to do with housing.

At the risk of drastically oversimplifying, the impact of rising interest rates on the stock market has to do with a couple things.

1) Reduced corporate earnings due to higher costs of borrowing. Stocks are driven by earnings, and if companies have to pay more when they borrow, that cuts into profits.

2) Increased attractiveness of investments other than stocks. Competing for the investment dollar, when interest-bearing investments earn more interest, they compete better with stocks as places to put money. Stocks get a bit less demand, and prices are set by supply and demand.

3) Emotions. Anticipating the effects noted above, people predict future moves and try to 'time the market' by selling early.

Given the state of the US economy and corporate earnings, both of which are very strong, slightly higher interest rates are not a big deal. Absent a panic set in by item 3 above, of course.

Investments are one of the few items that, when they go on sale, they seem less attractive.

The stock market is based on investors' expectations of FUTURE profits. So, it will typically go up slightly ahead or at the very beginning of what investors think is good economic news, and vice versa. So for example the market was trending downward just prior to the 2016 election, and then shot upward wildly as soon as it was known Trump had been elected. Hurricane Michael is the most recent "negative" piece of information, so the stock market goes downward. It is probably best to look at trends on a graph that can span at least a year or so. (You can easily google that stuff).

Mortgage rates go up because economic times are good and people want to buy houses. But there are a limited number of houses and a supply-demand curve for money. More people want mortgages, rates go up.

Of course a lot of other little things come into play also, but basically, supply-and-demand is not just a theory, it is an "observation about reality" ==> a "universal law". You can jump in and artificially upset it, but that upset will always be temporary, and the system will find a way to adjust anyway.

Federal Reserve Interest Rates were held down through the Obama regime in a futile attempt to prop up the anemic economy.

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Originally posted by arcwelder76:
Has the housing market "slowed?" That's not the term I would use. Around here, and in much of the country as I understand, there isn't enough housing to meet demand, and contstruction is nothing if not practically booming. I'd say housing is a hot commodity.

To say it slowed, would mean to me that there was excess housing and low demand.

Mortgage rates are up because the fed raised rates, plus the afformentioned housing demand.

As far as the stock market being "down," it's been at record highs, and wait 20 minutes and it'll recover...

The economy is strong, housing is in high demand, I would call recent reported losses in the stock market a blip. It'll probably go back to climbing.

Or not. I'm no financial analyst.

I would agree it has not slowed at all. In turn, expect the Fed to continue to raise rates at every meeting.

The Bond market is also stronger, and usually safer, so some people are pulling profits. Some will only do this until after the election.

My forecast is that stock prices will continue to fluctuate. Prices are likely to move higher, unless they move lower, although they may move lower unless they move higher, and unless they do either, chances are they will remain about the same.

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Originally posted by joel9507:


Investments are one of the few items that, when they go on sale, they seem less attractive.

We talked about that last night at the dinner table

I used the analogy with my young adult kids - a dress is in the window at $75 - you love it but think it's pricey. You see it the next day - it's only $50. Wouldn't you be MORE LIKELY to buy it? Same dress / less expensive...

I threw some money in yesterday (bought some dresses ) .

---------------------------------

The interest rate on my first home was 13.5% and that was through the builders mortgage company. By the end of that year (1981) it was around 20% market rate. Thanks Jimmy Carter.
Years later I refinanced to 9.75% and was happy as hell. A few years later, 6.75% and I paid extra each month to pay it off.
It's all a matter of your perspective.

As mentioned, it’s a minor blip still at this point. Also wouldn’t be surprised if a few heavy hitters decided to sell off and make a quick buck.

Down .03

OMGOMGOMGOMG.........

Interest rates need to go up to keep inflation from rising too fast. However, the FED raises the base interest rate. This effects the rate of all loans as they are the base rate + a percentage (based on risk).

As interest rates rise (mortgages), the housing market does generally slow down. However, the mortgage rates we've been seeing are incredibly low, and IMO should be around 6-7% +/- in a normal economy. It was a really weird housing market, interest rates were really low, but only half of the buyers that would be able to get a mortgage in a normal market, could get a mortgage due to ultra conservative qualifications. Honestly, I see no way on earth that a bank could make a profit on a 3.5-4% 30 year mortgage in the long term.

I believe the stock market is over-valued and there are a lot of people with more money in the market than they normally would have. Their 10/20 year bonds have matured, long term CD's matured and rates are so low that they're holding out waiting for interest rates to go up on safe investments and as the rates rise on those, money will slowly shift from the stock market to bonds and cd's, slowly bringing the stock market down to normal valuations.

I don't know about the rest of the country. BUT, here in South Florida which is one of the larger housing markets in the country, it has slowed over the past year and prices are staying even. Even though there are new luxury 25-40 story luxury condo's being built wherever they can.

But the stock market being 3% off the highest high it's ever had in history, would probably be just a normal correction...….if it keeps dropping, then it's cause for concern.

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Originally posted by JALLEN:
My forecast is that stock prices will continue to fluctuate. Prices are likely to move higher, unless they move lower, although they may move lower unless they move higher, and unless they do either, chances are they will remain about the same.

Nailed it. My step-son called yesterday and asked if he should change his 401K distribution. I told him it would be a good idea unless it becomes a bad idea. I told him to not look at the market or his 401K until he is within a few years of retirement.

Jim

Because a county boy can survive.

Duh.

wait, where's that poster who always posts after a market drop about how much money he made on risky securities, and got out with a hefty profit just before the drop.

(I always think he's lying, but that's another matter)

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Originally posted by Jimbo54:

quote:

Originally posted by JALLEN:
My forecast is that stock prices will continue to fluctuate. Prices are likely to move higher, unless they move lower, although they may move lower unless they move higher, and unless they do either, chances are they will remain about the same.

Nailed it. My step-son called yesterday and asked if he should change his 401K distribution. I told him it would be a good idea unless it becomes a bad idea. I told him to not look at the market or his 401K until he is within a few years of retirement.

Jim

Market timing, calling market turns, is fraught with perils.

I apologize here and now to my Sigforum brethren, and sisterns, for not posting an alert that I was nearing the completion of my portfolio realignment with a major buy on Monday. This is often a signal of short term instability ahead.

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Originally posted by radioman:
wait, where's that poster who always posts after a market drop about how much money he made on risky securities, and got out with a hefty profit just before the drop.

(I always think he's lying, but that's another matter)

You can.....you can also lose a lot of money just as fast on risky securities. Usually only 1 or 2 out of 10 win at this game. Even the ones that really win on a risky security, usually end up playing the game again and lose it all.

For example, at the bottom of the stock market crash in 2008, I decided I was going to buy around $250 worth of stock (each company) in around 6 major companies that were in serious trouble. Circuit City and another one, I lost my investment completely. GM I had bought a 100 shares at $3 a share and sold at $1.30 when I saw the writing on the wall. However, I bought Pier 1 imports at $0.60 a share and a year or so later sold it for just under $17 a share for almost a 3000% profit (I wish I had bought more than a few hundred dollars worth). Another one I did really well on, sonus networks as well.

I averaged 37% per year returns from 2008- 2013. I thought 14,000 points was too high for the dow then. Sadly I got out of the stock market pretty much completely in 2013 and moved my money into real estate (a 4 plex I rent out and a house I live in). Had I stayed in until now I would be a hell of a lot better off. Who knew. LOL.....However, at this point, I'm afraid to enter the market.