A very self-serving survey by TD Ameritrade discussed in the article Speculators Start To Eye Stocks As Home Sales, Price Gains Slow [IBD] but it provides food for thought.

Guess whether the survey favors the stock market or real estate?

A recent TD Ameritrade survey asked several questions of investors, including “What is the best type of long-term investment?” — real estate or stocks. Those picking real estate peaked in July, with 48% of investors favoring housing vs. 32% for stocks. That came as many real estate stocks and home prices in many markets topped.

The following seven months showed a shift back to equities, with stocks edging past real estate as the preferred investment choice in February — 40% vs. 38%.

The results would appear to be bias and thin but a good point is made. With inventory and mortgage rates rising, investors might start looking toward the stock market in search of returns on par with real estate seen over the past 5 years. This is not to say the current stock markets are at the point were their returns are better than real estate, but perhaps, the risks are lower. Its something to consider.

On one hand, the exit of speculators could be reduce some of the volatility in pricing, mostly by easing upward price pressure.

However, the loss of transaction volume would reduce overall demand in markets heavily dependent on speculators resulting in a significant drop in the number of sales and an eventual drop in prices. Markets with limited investor activity may not see much of an effect at all.

Note: In an ironic twist, Manhattan, with its limited exposure to speculators and dependence on Wall Street, would likely benefit from this transition when and if it occurs. More churn in the stock markets generate more income to Wall Street firms, which generates more bonus income to its employees, which generates more disposable income to purchase real estate. [self-fulfilling logic -ed]


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One Response to “Real Estate Speculators Are Switch Hitters: Is It Time To Bat Lefty (Stock Markets)?”

  1. UrbanDigs says:

    Keep in mind that rising interest rates makes equity investments less attractive as the stock market likes a rate easing environment where the economy is being stimulated by the fed.

    Stock markets are leading indicators, not lagging, and price into equities what is expected to come 6-10 months down the road from individual corporations.

    The fed’s moves also are lagging as it takes 6-10 months for each rate hike to funnel down into the financial system. This means that with a few more rate hikes expected by the fed, fixed asset and lending rates will continue to rise for at least the next year or so. By this time next year expect mortgage rates over 7% and 1YR CD rates well over 5%.

    If you can get over 5% in a secure 1YR CD, and at the same time expect 5% return on any equity investment, why take the risk with stocks? It seems foreign equity markets are more attractive these days such as Vietnam, India, Australia, & Mexico as they are trading at much more attractive levels than US equity markets. Although these markets already moved, Iceland & Peru are now on the radar of institutional and hedge fund managers. Interesting thoughts..

    I just dont see the US equity markets having a great year in this interest rate rising environment. If you asked me 6 months ago, I would have said yes.

    But since early November the DOW is up almost 700 points and the Nasdaq up almost 175 points. Looking forward I see a flat market that could go either way.

    So what do you invest in? Frozen concentrated orange juice is always an option!