Market Volatility Directly Tied to Housing Market

The opening bell of this morning's stock market brought a continuation of a high degreee of volatility, first since this was an options expiration day where many began positions to heavily short the market, then with the news that the Federal Reserve was cutting the overnight discount rate half a percentage point. This move by the Fed portends an easing of interest rates at the September and October meetings.

What does this mean for the housing market? Both Countrywide Financial and Washington Mutual were in serious danger of declaring bankruptcy over the next week. For those not in the housing market CFC is the number one mortgage originator in the country by volume. Wamu is I think #3 or 4. Should these two have gone under the country would have quickly followed into a full recession. This Fed action frees up a lot of liquidity between financial institutions, and access to credit is the grease in the wheels that help make this whole system run.

Fed Chairman Bernanke and company have really taken an extraordinary step at a time when the stock market was facing a day of unprecedented danger of falling an all-time record in terms of point drop along with record-setting volume. It doesn't mean that everyone is out of the woods and we can all party once again. It does mean that the financial environment is in a precarious position and that volatility will be the watchword for quite a while.

If I have said it once, I have said it a thousand times over the past three years. You cannot have 20% plus appreciation in housing prices each year for three years and more running without building excess into the market, and the unwinding of the excesses will take years, not days, months, or a season. The sub-prime and Alt-A mortgage markets brought many people into home purchases, where now that interest rates are adjusting many loan payments are going beyond the financial capacity of the home owners. As these people stop making their loan payments and go into foreclosure, the securitized financial products that these loans became a part of turn to junk, and nobody wants to buy them. This restricts the credit market big time. Hence, the market crisis.

That said, it is always a great housing market in California... but not for everybody at the same time. If you are in my local market area, give me a call and let's talk about how you can profit from this market environment.

You can depend on us to give you the straight scoop here in the Blog, and when you work with us as either a Buyer or Seller of real estate.