Residential Real Estate Strong When Stocks Falter

It might not be what you would expect to hear in the face of a falling stock market, but history has shown that residential real estate typically thrives when stock markets take a dip.

As Columnist Mark Hulbert reveals in Barron’s, “In 14 of the 15 previous U.S. equity bear markets, going back to 1956, the home-price index rose,” he writes. “And in that lone bear market prior to 2007 in which home prices did fall, they did so by just 0.4 percent.”

There are, of course, exceptions to nearly every rule and the decline in residential real estate prices during the infamous 2007-2009 bear market demonstrate that quite well.

That exception is open to interpretation like so many other things in life (and markets) and Hulbert decided that was worth looking into. He asked noted housing expert and Nobel laureate economist Robert Shiller about just that very thing.

“To some extent, it must be,” the Yale professor said. “Overall there just isn’t much correlation of home prices with the stock market. So it [what happened in 2007-2009] looks like just chance.”

This information is likely to get more than a few people thinking about how they might be able to use the real estate market as a way to protect themselves against declines in the stock market,  but since there is no easy way to invest your hard-earned money directly in the price of real estate, there are other avenues. The most obvious would be purchasing the stocks of home-buying companies. Another way would be through apartment REITs (Real Estate Investment Trusts).

Recent equity market performance may provide a little extra impetus for those who are looking to shelter themselves from the pain that may be in the horizon if you believe – like many others – that the appearance of the “Death Cross” means trouble lies ahead. This dreaded symbol has not materialized for about four years and it’s got more than a few investors feeling a bit uneasy. It happens when the S&P 500 index 50-day moving average dips below its 200-day average.

Market conditions and worries about a further drop might be just what some investors need to convince them that it is time to hedge their bets by getting themselves into some of those real estate investments that are likely to hold up during market carnage that may be coming in the near future.

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