March 18, 2014 Real Estate Report - A Bunch of Bull

With the economy still undergoing a very slow recovery, it is hard not to question why the stock market seems to be doing so well. The bull market for stocks is about to turn five years old with a gain of approximately 150% in the Dow over that time. Those are pretty impressive numbers, however when you look at the numbers more carefully, it depends upon the perspective. Measure from the peak in October of 2007 before the financial crisis hit and one will see that the Dow increased less than 20% total over the past 6.5 years. Measure from 1995 and the Dow increased over 300% in the past 19 years, showing that the long-term numbers are indeed pretty impressive. The real question is--why has the stock market fully recovered from the financial crisis while other areas of the economy still lag? Real estate is on the way back but has a ways to go to reach its peak just before the crisis. Many companies are still struggling and paring staff while employment has not recovered. Certainly the Federal Reserve Board has helped with record low rates. Companies have been reticent to hire in uncertain economic times, keeping staffing levels low while building up cash reserves and boasting profits. Some of this cash is making its way into the real estate sector as investors have purchased a record number of homes for cash. Is the stock market's rally telling us that better economic times are ahead? This is certainly a possibility. However, we also know that better economic times may cause the Fed to eventually raise rates and it will be interesting to see if that move would take the wind out the market's sails. A better economy actually slowing stocks down sounds perverse but it could happen. In the meantime, we enjoy the ride and the historical perspective reminds us that trying to time the market is an exercise in futility. This statement holds for real estate as well. If you bought a home in 1990 and stuck with a 30-year fixed home loan, you would have impressive gains regardless of what has happened since 2007. Keith Stewart 773-529-7000