Stock plunge a threat to housing

While most Americans has two parts to their investment portfolio — their homes and their stocks — they are knitted to together in critical ways.

Which is why the current stock market plunge may already be hurting consumer confidence when it comes to the housing market, according to some experts.

The big selloff in stocks that began last week has already sent mortgage rates plummeting, but so far that’s only translated into bigger demand for refinancings. The bigger questions for housing markets are whether stock market volatility will undermine homebuyer confidence, and whether declines in equity prices will mean buyers will have harder time scraping together down payments.

“The biggest impact will be on consumer confidence,” said Pat Stone, Williston Financial. “The two most notable things missing from housing are the first time buyer, and the move up buyer. Consumer confidence is critical to having the first time buyer re-engage, and if the stock market decline turns into a bear market, consumer confidence will decline and the first time buyer will continue to sit on the sidelines.”

Committing to a big mortgage payment is daunting when people feel their financial security is at stake. The financial collapse in 2008 spread like a virus bringing the housing market to its knees as people cut costs and held on during the great recession.

Global uncertainty including Ebola, war in the Middle East and Europe’s faltering economy has wreaked havoc in stock markets. The good news is that mortgage rates have plunged as investors seek a safer place to park their money — namely, bonds and mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae.

Today, the yield on the US 10-year bond fell an almost impossible 0.35 percentage points in a matter of minutes to under 2 percent, before bouncing back a little.

Bond yields and bond prices move in opposite directions, so investor demand pushes prices up and yields down.

But experts agree, low mortgage rates does not overcome economic demoralization by the public.

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