Personal Finance

What will crash first? Stock market or real estate?

  • Last Updated:
  • Mar 17th, 2014 6:26 pm
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Poll: What will crash first? Stocks or real estate?

  • Total votes: 26. You have voted on this poll.
Stocks
 
18
69%
Real estate
 
8
31%
Penalty Box
Apr 16, 2012
3565 posts
688 upvotes
Greely

What will crash first? Stock market or real estate?

Thoughts?

S&P 500 at all time highs and people are pulling out of market

Real estate at all time highs and people have been calling for crash since 09
8 replies
Deal Expert
User avatar
Feb 11, 2009
20055 posts
9837 upvotes
Toronto
Where's the option for neither?

If people were 'pulling out' markets would be going down, not up.

Regardless, I wouldn't say a small correction is not in order, but to call it a crash is where I strongly disagree. I.e. 10% down = correction, 50% down = crash.

And people calling for a crash since 09 is just that. If you say it's going to crash every year, eventually you'll be right.

I know the house my parents own has nearly doubled in price since 2009, so even if there is a 50% crash, they're still ahead. Effectively proving those guys wrong.
Realtor (Investment Properties) - CPA, CA
Deal Addict
User avatar
Jun 28, 2007
3866 posts
1027 upvotes
Based on historical data, and measures of volatility, stocks hands down, would theoretically be the first to crash. In other words, real estate does not "crash" as often as stocks do. That said, when real estate crashes (and it has a couple of times in the past) its far more painful for households than when stocks do. Part of the reason is because households have more of their equity tied up in property than they do in stocks. As a result, the "wealth effect" is bigger.

Of course that doesn't completely answer your question, but who the hell knows the answer - maybe neither crashes anytime soon but goes sideways!
Deal Fanatic
User avatar
Feb 19, 2010
6237 posts
2992 upvotes
There would be a lot less threads and discussion on subjects like this if there wasn't such liberal use of the term "crash". It is entirely likely that both the stock market and some housing markets are due for a "correction" but calling for a "crash" in either one is just incendiary.
Sr. Member
May 26, 2010
575 posts
139 upvotes
Conquistador wrote: There would be a lot less threads and discussion on subjects like this if there wasn't such liberal use of the term "crash". It is entirely likely that both the stock market and some housing markets are due for a "correction" but calling for a "crash" in either one is just incendiary.
Spot on. There is so much wasted discussion on here because people have different interpretations of what words mean (when we've got such a spectrum of meanings of a basic term like "crash", it is no wonder that a more complex term, like "subprime" sends the entire board into multi-page meltdowns).

For exmaple - one person predicting a crash could be expecting a 15-20% drop in a year, another expecting a 40-50% drop in 5-7 years. Either one could be called a crash or a correction - depending on the indivuduals point of view.

It is obviously a lot easier for the stock market to shed 30% of it's value in a year than it is for the real estate market - which doesn't help as the categorisation of crashes in two completely different asset classes aren't really comparable.
Jr. Member
Nov 9, 2007
182 posts
20 upvotes
Vancouver
I think the Canadian real estate is overpriced, whereas the S&P 500 is still undervalued
Penalty Box
Apr 16, 2012
3565 posts
688 upvotes
Greely
RaptorsTV wrote: I think the Canadian real estate is overpriced, whereas the S&P 500 is still undervalued
ok can you substantiate why? Both are at historical highs.
Banned
User avatar
Feb 15, 2008
26318 posts
3242 upvotes
Calgary
Are you talking about in the Canadian context, or the US context?

In Canada, clearly RE is far more vulnerable than stocks. If you look at a wide variety of large-cap Canadian stocks, it could even be argued that the stock market crash has already happened. And history shouldn't be expected to repeat itself like in 2008-2009.

In the US, its somewhat of a toss-up. And I think a setup for a triple crash -- stocks, housing/real estate, and bonds. And ultimately the value of the USD$ (at least against the CAD$, gold, etc.) once they try and inflate their way out of it. But I have no opinion as to which will crash the most furiously. Is RE a better investment than Amazon stock, for instance? It may very well be. But that doesn't mean that RE will be immune from crashing.
TodayHello wrote: ...The Banks are smarter than you - they have floors full of people whose job it is to read Mark77 posts...
Banned
User avatar
Feb 15, 2008
26318 posts
3242 upvotes
Calgary
mattieuk wrote: It is obviously a lot easier for the stock market to shed 30% of it's value in a year than it is for the real estate market - which doesn't help as the categorisation of crashes in two completely different asset classes aren't really comparable.
True, over the long term, Real Estate tends to be a less volatile asset class. But in the shorter-term, real estate has experienced huge volatility to the upside which is quite historically unusual. While the stock market, quite uncharacteristically, actually has a far greater earnings yield than long-term government debt, corporate debt, with a cash dividend yield that exceeds that of T-bills. A situation which I have never seen in my lifetime and has not been seen since the 1960s.

So I'm not too sure, during the next period of severe turbulence, that RE will keep its historical "safe haven" of being less volatile. This time around, central bankers have limited policy tools such as lowering interest rates, or expansion of less-than-prime lending as they did last time.

The other issue with comparing stock and RE volatility is that of the psychology and observability. RE that goes "no-bid" isn't marked down to $0. Stocks that go no-bid are marked down to $0. As we're seeing in the contemporary RE market, as RE is not a homogenous asset class like individual stocks, one has to look beyond "averages" as well. Or else face some rather misleading conclusions regarding the pricing on what have been termed "identical properties".
TodayHello wrote: ...The Banks are smarter than you - they have floors full of people whose job it is to read Mark77 posts...

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