Question by Dog Daze: Why does a slowdown in existing home sales affect the stock market?
People need places to live, so if existing homes are not selling then it seems to me people are just renting more, changing jobs less, and possibly will invest more in home imporvement, so the ways money is spent and the beneficiaries may shift, but the net affect on the overall market would be negligible?
I can understand new home sales a bit better, but even then i would think that would affect mainly construction-related companies and mortgage finance related companies, not the broad market.
What relationships am i missing?
Answer by billiardjay
Housing sales is considered one of the leading indicators of economic activity. It is also an indicator of consumer confidence.
If there is a downturn in a “leading indicator” such as housing sales, it portends a downturn in overall economic activity at some point in the near future. Why this is so is still up for debate, but history shows it to be a valuable predictor of economic trends.
Since the markets are at an all-time high (and investors fear that they are overvalued), anything that points to a potential weakness in the economy will understandably cause a bit of a sell-off.
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