I've been reading a lot about a potential crash in house prices. If this happens will a lot of small investors divert from property to stocks, therefore causing an index rise ?
Rich
What will they have to divert from property to stocks? If stocks fall and people move out then they have something to sell - their stocks - in order to generate capital to invest in property. When property bubbles burst people sudden;y discover that property is not that fluid.
Anyhow, maybe a property crash will also cause a stock crash as well?
No, but it may stop people from investing in any more property and put it in stocks instead. Those who can't sell out at a profit won't make any differenec anyway.
Rob Graham
Maybe, but not likely.
Most people's investment in property is the home they live in, so they can't really sell that. Buy to let speculators can sell of course, but most property investments are highly geared, so they may well be sitting on negative equity if prices fall significantly.
People who were thinking of putting money in property may decide to redirect it to the stock market instead, but the amounts involved probably won't be that significant.
What will happen is that the companies that make up the index will suffer from the property crash. A lot of them own the properties they trade from, and a fall in their value will be priced into the shares. Construction and property development companies will suffer from the crash, banks could suffer from increased bad debts, and other companies in general could suffer from reduced consumer spending if they aren't able to remortgage their houses for extra spending money.
It certainly will, in the property sector.
In message , Jonathan Bryce writes
I dont think that there will be the same effect on commercial property as we may see in domestic. Commercial property values, being valued on their rental return, are not greatly correlated to domestic property prices.
Agree with all this tho..
In message , John Smith writes
No, now is the time to start regular contributions so as to buy cheap!
No (and therefore no)
In message , John Smith writes
RMy post was slightly tongue in cheek but regular savings benefit from pound/cost averaging and a falling market means you buy more cheaply.
Sounds like a plan to stop paying into share based pensions and to sell up those PEPs and ISA?
But if there is going to be a crash in stocks surely not?
Buy-to-let investors are relatively lowly-geared - market estimates vary around 50%. And every poll has shown most are ready to hold for the long term rather than panic sell.
Commercial property has no correlation with house prices. But by coincidence, values have fallen during the housing boom and are set to take off again - just as housing subsides.
In any case, owner-occupied property is not factored into share prices
- mainly because valuation is likely to be inaccurate. There is no obligation for external valuations, so it is usually hidden away at historic value or directors' estimates. Only when unwelcome takeover bids come in do firms suddenly revalue to prove the bids are too low.
Even leasehold property is invisible - although this could change when new international accounting standards come into force next year.
Only those tied to the housing market. Commercial property development is recovering.
You think small investors affect the index?
Plus retailers stocks will be hit as consumers can no longer borrow against housing to spend above and beyond the call of duty.
FoFP
Since the earliest figures I've got - 1980, there's been no correlation.
Daytona
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