[quote=deadzone]Looking at the last 10 years a macro level RE price to Stock correlation does exist to some degree, but it is not for the reason you guys are saying. It has nothing to do with individuals feeling more wealthy from their stock portfolios. It has everything to do with the Fed’s interest rate policy.
As we saw in the early 2000s and again in 2009, the easy money from the Fed acts to juice the equity markets. In the case of the 2001 interest rate cuts it also helped launch the housing bubble.[/quote]
deadzone,
You likely know that I am a long-time bear (still renting, and have been doing so since spring 2004, and have been sitting in cash for a long time…waiting for deflation), but even I have to admit that for as long as the stock market is up, housing will not crash as spectacularly as it would if the stock market were to implode.
You have to realize that aside from the very real wealth that is created when stocks rise — and I personally know quite a few who cashed-out options/stocks and purchased real estate — there is the psychological aspect. Many, many people look to the stock market to tell them if the economy is “healthy” or not. Yes, it’s stupid and lends itself to the Fed/govt being able to easily control people’s behavior, but it is what it is.
Yes, the price movement is mostly due to the Fed/govt’s actions (note the last paragraph in my post above about “cheap vs. dear” money), but asset prices tend to move together.
The reason we had the insane rise in housing prices is because the credit bubble (which started in the early 80s) was beginning to wobble during/after the stock market bubble, so the Fed tried to juice the market by dropping rates through the floor. It would seem obvious that there would be a tragic end to this reckless credit expansion, but apparently they don’t care, are sociopathic criminals, or are so painfully stupid that they have no right to control our monetary policy.
Still…the correlation does exist, whether we like it or not (I don’t).
