Where will the money go?
There is some speculative money in the real-estate market. If the real estate price drops, these specualtive capitals will be hurt too. Is the money going to stock market? Not necessarily. The speculative money will go to where there is a potential gain. If the house price suffers a big drop, it will hurt the economy very badly. For example, I just got a 240K HILOC loan because my house has appreciated big time during the last two years. For past two years, people have been taken advantage of their house appreciation to get low rate loan to cash out their home value. The loan was spent on home improvement, buying cars, travel, etc. That is why the consumer spending has been so strong and corporate earning has been increasing. Look at the earning of Home Depot in the past two years. Will it sustain? Fed has increased the rate 13 times and has no intension to stop any time soon. The mortgage rate will go higher and the house price will drop (or at least stop going up). People also need to pay higher interest on the advances they borrowed in the last 1-2 years. The high rate means there will be no more cheap loan for people to borrow to spend. Slowing the economy is unavoidable. High interest rate may also force some people to sell the house which will cause the real estate bubble burst. So there will be less house value for people to cash out for spending. Some people can not pay and will bankrupt, recession may come. Whenever people think this time is different from before, trouble is coming. During 1999-2000, people thought the stock could have high PE because it was a different “new internet economy”. Although I hold short position in my stock trading account, but for my best financial interest I hope the opposite happens: house price to be stable, economy to be strong and stock market keep going up. Otherwise, my house value will suffer, my 401K will suffer and my company stock option will worth less, and my job may be insecure.
Good luck to everyone’s money!