by Costas Chryanthou

Created on: July 25, 2008   Last Updated: April 12, 2009

The recent housing market blip on valuations of house prices which in practical money terms means that now the people who were buying houses to sell to others are no longer able to reach the required returns they expected. So instead of either holding on to the property some groups of people have no choice except to sell the property even taking a slight loss, or selling the property at a big discount to encourage the sale. The stock market was the beneficiary during the decade long housing boom time. Sadly the times have changed and the house valuations mean that less money is being made from property, and the effects are the owners can no longer afford to invest as highly and as such valuations of shares have dropped.

More obvious view of the impact of the housing market crisis has lead to hefty write downs, job losses and falling stock prices in many different industries. Probing further we know that the finance sector took a big hit regarding the financing of the sub prime mortgage sector area, and now mortgage lenders have tightened up their own lending regulations and criteria as to how much and to whom they lend the money to. In consequence this has taken money out of the economic picture as a whole. Therefore again the levels of stock market investment will fall, along with the level of inward foreign investing from big corporations and foreign banks and finance institutions. Certainly the retail banking network on a wholesale lending money to each other has taken a step backwards. There seems to be less capital and money flowing around at the moment. In terms of the housing market as such people not being able to find the financing and the required parties who can afford the properties is also as issue. Again those looking at buying a new home might well have to sell stocks and other securities in order to finance their homes.

House builders and construction companies seem to have taken a long standing hit upon this particular sector in view of the housing market crisis. Those who invested in construction stocks or whom are picking up the financial newspapers will no doubt see low valuations upon construction companies stocks. This factor is entirely down to the depressed state of the housing. It is effectively a situation where the demand is not able to afford the supply of new homes. The repossession orders and banks reducing the accepted applications for loans and mortgages also has tightened the money supply. Overall, the trend has had an impact in England and will no doubt feed into European markets, if it has not done so already. The extent and duration again is unknown.

I feel that overall the impact upon the stock market will not be a catastrophic scenario as the housing sector represents less than 5% of GDP, and any liquid stock market and affluent economy should have sufficient resistance and provide support for the stock market indices price level. In recent years the rise in the stock market has not been greatly influenced by the housing market strengths or weaknesses. It seems that whilst one industry experiences a decline another industry experiences it alternate share of good luck. The housing market effects are only known to a small extent. I feel that should the housing market continue to decline, then as more jobs and more economic worries hit people hard, then the stock market may also lose its lustre at some stage.

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