4 Ways the Stock Market Affects Your Homebuying Plans

When you’re house hunting, you’re laser-focused on your budget, interest rates, and down payment. But one factor that might not be so high on your radar? The stock market.

The stock market – and general economic sentiment – plays a bigger role in your homebuying journey than you might expect. It influences everything from how low your interest rate could be, to how much your savings may be worth.

Here’s a closer look at four ways the stock market can shape your path to homeownership.

1. Mortgage Rates Follow the Market

When the stock market takes a dip, investors shift to safer assets like government bonds, driving bond yields – and, in turn, mortgage rates – down.

But on the flipside, when the stock market is thriving, interest rates tend to rise, too.

What this means for you: If the market is volatile or crashes, you may see lower interest rates from lenders as the Federal Reserve tries to stimulate the economy. If the market is booming and inflation rises, you’ll see rates rise, making mortgages more expensive.

Even a small difference – 6% versus 6.5% – can make a significant difference on your monthly payments.

2. Your Down Payment Might be Tied Up in the Market

Homebuyers often save for a down payment via accounts such as stocks and mutual funds. When the stock market is strong, you’ll see your savings grow faster, giving you more buying power. And when it’s down, your down payment fund could shrink, potentially delaying your plans or forcing you to put down a smaller deposit than planned.

What this means for you: If you’re planning to buy within the next one or two years, financial advisors will often recommend shifting your savings into safer assets that are less likely to fluctuate. This includes accounts like high-yield savings accounts or GICs. You may not get a market boost, but you won’t be at risk of market-related losses.

3. Stock Market Confidence Can Boost Home Prices

When the stock market is strong, consumers feel wealthier. They see higher returns on their investments and this so-called “wealth effect” encourages them to spend more – including on housing.

The result? Higher home prices. More homebuyers are shopping for properties, driving up demand. Investors may even feel emboldened to buy second properties, fueling the competition.

On the other hand, when the market hits a bumpy road and there’s economic uncertainty, people tend to delay big purchases such as buying a house. This leads to more buying power for homebuyers: you’ll see more homebuying incentives or price adjustments to match buyer demand.

What this means for you: During a healthy economy, home prices may surge as competition rises. Once the market cools, fewer homebuyers means better pricing and incentives to take advantage of.

4. Global Economics and Job Stability Matter

If you happen to work in a sector heavily tied to the stock market, such as banking, finance and tech, your job security and bonuses will be directly linked to how well the market performs.

If you aren’t getting this extra windfall as planned, this could affect your mortgage pre-approval in a big way. This is heightened during a recession when lenders are wary of potential layoffs or income fluctuations and tighten their borrowing standards.

They’ll take your wider economic profile into account, too. They’ll look at your overall assets, including overall investment accounts, to see if they may dip during the lifetime of your mortgage.

What this means for you: Lenders need to know your income and assets are reliable. Put your best foot forward with a cushion of savings locked up in a safe account that’s protected from market crashes. If you plan on using investment income or selling stocks for closing costs, your timing is crucial.

The bottom line: You don’t need to be a stock market expert to buy a home, but understanding how the market affects mortgage rates, home prices, and pre-approvals can help you make smart, strategic, financially-wise decisions.