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When the stock market plunged in 2001 I heard more than one person tell me the stock market was not for them and that owning real estate was the way to go. I did not disagree at the time, but looking at the trends these same people are now getting out of real estate and into the stock market.

You can’t say the Dow is up 100 points today because everyone sold their second homes this weekend,” said Art Hogan, chief market analyst at Jefferies & Co. “But while it’s difficult to pinpoint the timing of the effect, I think you can say there’s been a slow migration of money from real estate to cash and then to equities for the last year or so.”

Of course, the combination of high energy prices and rising interest rates has put pressure on the stock market also. Not to mention the slowing residential real estate market. But in the long run, there is so much money that needs to be invested that whatever the investment du jour is, it tends to go up just by the amount of financial pressure behind it.

Anthony Chan, senior economist at JPMorgan Private Client Services, agreed that the shift has been an important support for the stock market in a year it’s been hampered by energy price spikes, concern about Fed rate hikes and forecasts for an economic slowdown.
“We know new money is not going into real estate, since it looks more and more like that is dead money,” said Chan. “I’m not sure the flow has been strong enough to cause an avalanche. But it’s been enough to help the [stock] market hold its own.” He estimated that from a quarter to about half the gains in the major stock indexes this year could be due to the housing market weakness.
How much money has flowed from real estate to stocks is impossible to say for certain, but even a conservative estimate would suggest it is in the range of hundreds of billions of dollars. via Money.com.

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