The real estate market and the stock market are two of the biggest engines of wealth in the U.S. but how closely are they connected?
While they operate in different spheres, a booming stock market often coincides with rising home prices. Here's what buyers, sellers, and investors need to know about the relationship between stock market performance and the housing market.
Is There a Correlation?
Yes, but it's complex. The relationship isn’t always one-to-one, but historical data shows that when the stock market performs well over time, real estate values often rise too. Here’s why:
1. The Wealth Effect
When investors see their portfolios grow, they feel wealthier and are more likely to make big purchases like real estate. This is known as the wealth effect, and it plays a significant role in luxury and second-home markets, especially in high-net-worth regions like California, New York, and Florida.
2. Down Payment Liquidity
A rising market gives homeowners and investors access to capital. Gains from stocks can be liquidated (or borrowed against) to fund down payments, investment properties, or cash purchases.
3. Consumer Confidence
When stock prices are climbing, consumer sentiment tends to rise. People are more confident about their financial future, which can fuel housing demand…especially in competitive markets.
When the Stock Market Booms, Who Buys Homes?
- Tech employees with vested RSUs or stock bonuses (think Silicon Valley, Seattle, Austin, or LA’s Silicon Beach)
- Retirees cashing in market gains to downsize or relocate
- Investors looking to diversify into real assets like income-producing properties
- Move-up buyers who see increased equity in their retirement or brokerage accounts
Real Estate Trends During Strong Market Cycles
Historically, we’ve seen:
- Increased home buying activity, especially in affluent areas tied to the tech or finance sectors
- Rising home prices, particularly in high-demand urban and suburban markets
- Growth in second-home purchases, particularly in vacation destinations
- More cash offers, driven by stock market liquidity
What Happens When the Market Dips?
The connection works both ways when the market stumbles, confidence and buying power can shrink:
- Buyers may delay purchasing due to perceived uncertainty
- Stock-based income (such as RSUs) becomes less attractive to lenders
- Luxury home sales may slow if wealth evaporates
- Real estate investors may shift to lower-risk strategies or pause acquisitions
Is the Correlation Perfect?
No. While the stock market and housing market can influence each other, they also respond to very different forces:
- Real estate is driven by local supply and demand, interest rates, inventory, and demographic trends
- Stocks respond to corporate earnings, monetary policy, and global economic conditions
For example, during the 2020 pandemic, the stock market rebounded quickly, but many real estate markets took longer to recover. Conversely, rising mortgage rates in 2022 cooled real estate demand even as stocks remained strong.
Real-World Implications
For buyers and sellers, the takeaway is this: a strong stock market creates favorable tailwinds for real estate, especially in mid-to-high price brackets. But savvy investors consider both markets in their decision-making.
Final Thought
While real estate and the stock market don’t always move in lockstep, they’re often aligned in times of economic optimism. If your portfolio is growing and you're considering a real estate investment, now could be the time to leverage that strength.
At the Stephanie Younger Group, we help clients(especially stock-compensated buyers) understand how to translate financial market wins into smart real estate decisions. We are the first RE team in LA to offer custom mortgage programs to take advantage of RSU income.
Disclaimer: This article is for informational purposes only and does not constitute financial, investment, legal, or tax advice.