Should Real Estate Investors Be Worried About U.S. Stock Market Volatility?

Should Real Estate Investors Be Worried About U.S. Stock Market Volatility?

Commercial News » New York City Edition | By Michael Gerrity | January 21, 2019 8:45 AM ET

The Dow Jones Industrial Average finished 2018 down 3.5% and lost 13% of its value between October 2018 and December 2018 alone -- its worst annual performance since 2008. The downturn rippled through world equity markets.

Should real estate investors be worried?

Yes, says Richard Barkham, Global Chief Economist & Head of Americas Research of CBRE, but only if policy makers overreact.

CBRE reports there have been two instances in the past 30 years--1987 and 2000--where large stock market losses have come out of the blue at a time of robust economic confidence and low inflation

On October 19, 1987, the DJIA dropped by 22%. Black Monday raised fear that the global economy was slipping into another serious recession, like that of 1979 to 1982. Interest rates were lowered and government spending was increased. Since the global economy remained in relatively good shape, the stimulus stoked inflation and fueled a property boom, particularly in the U.K. Real estate did well for a couple of years but crashed in 1989, not as a direct result of Black Monday but of the mistaken policy response, CBRE explains.

The bursting of the dot-com bubble in the early 2000s was spread over three years, but the DJIA lost 27% of its value between January and October of 2002 alone. Interest rates were lowered, the U.S. moved to a zero-interest rate policy and government spending increased. A mild recession in the developed economies ensued, but real estate was relatively unscathed apart from certain office markets. Far more damaging was the housing market boom, ignited by aggressive interest rate cuts, which fell apart in 2007, continued CBRE.

Bottom line: The global economy is in good shape and real estate investors should not fear a real estate crash reports CBRE. What should worry them is the potential for too much late-cycle stimulus, but for now this is not an issue. The Fed should continue to do its job without political interference.

Source: CBRE

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