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It’s been a bumpy ride with flighty swings for the S&P 500 stock index this past week, which dropped by 4.6 percent, its most severe weekly dip since February. What does it all mean?

According to Ruben Gonzalez, chief economist at Keller Williams, very few buying and selling decisions are likely to be directly impacted in the near-term by the stock market’s decline, stating “it’s more likely that buyers and sellers become more jittery about the future of the economy in general, and this could affect housing decisions.”

The stock market blip could be nothing more than a simple correction, says Lawrence Yun, chief economist for the National Association of REALTORS®, who states a housing bubble prediction is misplaced; in fact, this correction could prove beneficial to homebuyers, spurring a slowdown in interest rate hikes.

“Mortgage rates declined…amid a steep sell-off in U.S. stocks,” stated Sam Khater, Freddie Mac’s chief economist, in Freddie’s latest Primary Mortgage Market Survey®. “This…rate reaction to the volatile stock market is a welcome relief to prospective homebuyers, who have recently experienced rising rates and rising home prices.”

Yun, who agrees with that sentiment, says “mortgage rate increases from the summer months, all the way to November, have held back home-buying—but with the continuing stock market volatility, mortgage rates are now retreating. I think this is good news for the buyers, giving them a second chance.”

The 30-year, fixed-rate mortgage (FRM) was brought down for the week ending December 6, from 4.81 percent to 4.75 percent. Additionally, the 15-year FRM stood at 4.21 percent, down from the prior week’s 4.25 percent.

Of course, there are many variables to consider. The Treasury yield rate is, perhaps, the leading cause for concern, as a yield curve inversion is said to be a predictor that a recession is ahead within the next two years, according to Gonzalez.

“Looking a little further in the future, we need to consider the implications of a potential yield curve inversion; this happens when the yields for longer-term treasuries become lower than those of shorter-term treasuries,” says Gonzalez. “The implication is essentially that investors are anticipating lower returns in the near future, which means they think a recession is likely.”

The short end of the yield curve partially inverted on December 4—interest rates for the two-year U.S. treasury bills are currently at 2.72, above the five-year bill number of 2.70. Because of this, Gonzalez expects a more uncertain market than we experienced earlier in the year.

“If buyer confidence is shaken as a result of volatility, we can see that show up in hesitancy to make major purchases,” says Danielle Hale, chief economist for realtor.com®, who in part agrees with Gonzalez, but says the volatility is not a clear-cut measure of confidence.

“If you look at exposure, many more Americans see their net worth impacted by changes in the value of housing than by changes in the value of the stock market,” Hale says.

Homeowner confidence is looking good, according to Hale, who states “the homeownership rate has steadily climbed from an all-time low of 62.9 percent in the second quarter of 2016 to a rate of 64.4 percent in the third quarter of 2018. By comparison, data suggest that only roughly half of American families (51.9 percent in 2016 and 53.2 percent at the highest level recorded in 2007) have stock holdings (owned either directly or indirectly, as in mutual funds).

Other fundamental signs point to a balanced market, as well.

“While there are some concerns that there is an increased risk in a recession with the stock market becoming pessimistic, the economic fundamentals—job creation, unemployment rate and inflation rate—all look very solid,” emphasizes Yun. “The only potential risk for a recession is in a trade war—if it can be averted through negotiations, it will be better for the economy.”

According to Mike Fratantoni, chief economist and senior vice president for Research and Technology at the Mortgage Bankers Association (MBA), the labor market remains strong.

“The unemployment rate is still near 50-year lows, and wage growth is above 3 percent on an annual basis. With home price growth also slowing and mortgage rates easing a bit, sustained wage growth of better than 3 percent certainly helps affordability conditions as we head into 2019,” said Fratantoni in response to the November jobs report.

These are more significant predictors of the market, according to Yun, who says “most buyers today are less concerned with stock market volatility and are instead looking at income payment ratios and being able to afford a mortgage.”

So, are the recession concerns unwarranted?

Gonzalez says, “right now the economy is doing well going into 2019 based on just about any indicator you look at, other than the stock market and the yield curve.”

Marci Rossell, chief economist for Leading Real Estate Companies of the World®, believes the potential for a yield curve inversion could, in fact, lead to a recession—however, not the type of recession that is real estate-driven but, rather, one that merely “takes the wind out of the sails” for the industry.

“I do think the correction is a worrying sign when coupled with the potential for a treasury yield curve inversion. I’m watching that yield curve very closely because it tends to be a pretty reliable predictor of a recession,” says Rossell. “However, this is all about policy. It’s a slowdown caused by trade tensions and it is not emanating from real estate. A more realistic way of looking at things is that this is simply a reaction in anticipation of increasing interest rates—a totally different scenario from what happened in 2008.”

Liz Dominguez is RISMedia’s associate content editor. Email her your real estate news ideas at ldominguez@rismedia.com. For the latest real estate news and trends, bookmark RISMedia.com.

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