March 9th is definitely a day to remember for investors and stock market participants. You see, the stock market experienced its lowest close eleven years ago on March 9th, 2009 during the Great Recession. While there has been a number of turbulent events and market corrections over the past years, it has remained a bull market nonetheless. But then, a Black Monday happened again on March 9th, 2020. For the first time since 2008, Wall Street experienced what could be properly described as a stock market crash. Here’s a quick recap of the stock market crash 2020, what caused it, and how this will affect the US housing market 2020 and real estate investors.
Related: Can the Stock Market Affect the Real Estate Market?
The US Stock Market Crash
There have been signs of a US stock market crash 2020 since late February when multiple market indexes like the Dow Jones Industrial Average (DJIA), Nikkei 225, and the S&P index all fell into a correction during one of the worst trading weeks since the financial crisis of 2007–08. Early into March, the stock market became extremely volatile, with large swings occurring in global markets. And on March 9th, the biggest stock market crash in 2020 began when most global markets reported severe contractions.
The Dow Jones index fell 2,013 points that day (7.79% drop). At that time, this became known as Black Monday and the worst points DJIA has dropped in a single day since the 2008 Great Recession. However, only three days later, it was followed by two more record-setting point drops. On March 12th, Dow Jones fell a record 2,352 points (9.99% drop) – the sixth-worst percent drop in US history. Following that, Dow Jones experienced another hit on March 16th when it lost 2,997 points (12.93% drop), setting a new record that topped the original October 1929 Black Monday slide of 12.8%. The chart below ranks the 10 biggest one-day losses in DJIA history.
Source: S&P Dow Jones Indices
Before this dramatic stock market crash, the Dow Jones Industrial Average had just reached its record high in February. From that peak to the March 9th low, Dow Jones had lost a total of 5,700 points (19.3% drop). It had barely avoided the 20% decline which would’ve launched the start of a bear market and put an end to the 11-year bull market that started in March 2009. As this crash is still fresh in everyone’s minds, you must be wondering what happened. Why did major US market indexes fall into bear market territory just shy of a 20% stock market downturn?
Causes of the 2020 Stock Market Crash
The stresses that led to the 2020 Monday stock market crash had been building for a long time. Investors had been worried ever since President Donald Trump launched trade wars with China and other countries. However, the majority of analysts say that the number one reason behind the drop is the ongoing threats of the coronavirus disease 2019 (COVID-19) and its negative impact on the global economy. The spread of the virus and after it was declared a pandemic by the World Health Organization contributed to a broad slowdown in the world’s economy.
Besides the obvious point that COVID-19 is a direct threat to the well-being of people worldwide, it’s a threat to people’s financial well-being as well. That’s because coronavirus and – more importantly – the uncertainty and fear surrounding it can affect supply chains for most industries and sectors. Investors are starting to see a slowdown in the US economy and are worried about the virus’s impact on industries like the real estate market in 2020. As more and more people are now staying at home and being pulled out of economic activity, owners of medium and small businesses are also seriously affected by the pandemic. This is making the threat of global recession a possibility.
Another, probably even bigger, driver of the US stock market crash in 2020 is an oil price war that broke out days before the event. Somewhat related to the virus, there has been a drop in demand for oil lately as thousands of flights were canceled since the COVID-19 outbreak has become a global pandemic. The threat of an oil price war sparking between Saudi Arabia and Russia also sent oil prices down. In conclusion, the drop was caused by growing global fears about the spread of the coronavirus, oil price drops, and a looming recession in 2020.
Impact of the Stock Market Crash on Housing
If you invest in real estate, you’re probably asking what’s going to happen to the housing market after the stock market crash? Here’s what we found based on researched and real estate data. First off, we can see the biggest impact on housing inventory and construction of real estate projects. Data from Realtor.com shows that the US real estate market 2020 continues to tighten as housing inventory dropped 13.6% YOY in January and 15.3% YOY in February. The main reason for this drop is because homebuilders are not only feeling the demand pullback as homebuyers stay home, but also the supply impact of materials that they normally import from China.
Of course, the stock market crash is also affecting the confidence of potential buyers and sellers. People who have lost a lot of their “paper” wealth and were hoping to buy a house are changing their plans. On the other hand, sellers are also delaying listing their homes until the crisis is over and a lot of open houses and showings were canceled. This will lead to a drop in home sales – we might see a 10% near-term drop in home sales within the next month according to NAR housing market predictions.
Related: US Housing Market Predictions 2020 for Spring
As for the investors in rental properties, you should start preparing to deal with tenants who have lost their income and are unable to make the current month’s rent. Right now, landlords need to focus on keeping their occupancy rate up, which might mean giving tenants some leniency in the near-term. However, the long-term predictions for rental properties are still bright for 2020 real estate investors. Before the spread of coronavirus, lease renewals and apartment construction were still strong. And when the crisis passes, the fundamental positive long-term rental trends will re-assert themselves. Furthermore, history shows that long-term rentals have always been the safest and best real estate investments in times of uncertainties and fears of a recession. This leads us to the next question people have been recently asking.
Will the Stock Market Crash in 2020 Cause a Recession?
Often, a US stock market crash will cause a recession. The bad news is that the combination of the stock market crash in 2020 and the COVID-19 pandemic can make a looming recession even more possible. A pandemic often slows economic growth as businesses slow (or close) and people stay home to nurse their illness or avoid catching it. Together with the fear that people feel when a stock market slowdown occurs, these factors could easily trigger a recession. The good news, however, is that the majority of real estate experts don’t expect a housing market downturn or for buyers to back down.
On March 15th, the Federal Reserve announced a second emergency interest rate cut since the coronavirus pandemic, resulting in a near 0% interest rate. Typically, when the federal fund rate is lowered, mortgage rates follow. Meaning, the Fed made this decision in order to minimize the negative effect of COVID-19 on the US housing market 2020, encourage home sales, and stabilize home prices (or at least keep them from dropping significantly). For more information, read our article: Will the US Housing Market Crash in 2020?
If you’re a real estate investor in the US thinking of buying rental property once the crisis is over, it makes sense to add to your savings and keep searching for the best real estate deals. If you have enough cash in hand and have found a good investment property, buying isn’t a bad idea since mortgage rates are low. You can even make your real estate investment recession-proof – read this guide to learn how.
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What Will Happen After the Stock Market Crash?
For now, experts say it’s too soon to tell whether the worst has already passed as the stock markets’ daily swings make it hard to identify a clear trend. Furthermore, while the novel coronavirus and resulting stock market crash in 2020 are sure to have impacts on the US housing market, rapidly changing conditions make it unclear just what they will be. With so much volatility and many unknowns like how long this pandemic is going to last, the housing market of tomorrow could be much different than the housing market today. Smart investors should stay informed on coronavirus real estate trends and keep watching how things unfold until the right time to make a real estate investment comes.
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