Stock Market Surges Into October

Stock Market News; On Wall Street the Stock Market appeared to abandon its fears about the depth of recent housing and credit industry woes and opened the fourth quarter of the calendar year Monday (October 1, 2007) with huge gains.

According to an Associated Press report, “Stocks were buoyed by a growing belief that the worst of the credit crisis has passed.”

The Dow Jones industrial average (DJIA) rose 191.92 points Monday, an increase of 1.38 percent, achieving an all-time record Dow Jones close of 14,087.55 points, eclipsing the previous record of 14,021.95 set July 17.

A steady rise of the DJIA from a mid-March low of just above the 12,000-point level culminated in the index topping the 14,000-point level on July 19, but a 450-point one-day loss exactly one week later on July 26 that was triggered by concerns over the turbulence in the U.S. sub-prime mortgage market — the largest one-day decline since the Sept. 11 terrorist attacks — threatened to negate four months of steady progress, especially after the DJIA slid below 13,000 in mid-August.

The July and August losses were prompted by fears over a stagnated housing industry and news about the shaky status of millions of sub-prime loans.

President George W. Bush and Federal Reserve Bank Chairman Ben Bernancke quickly addressed the housing and credit issues in speeches and Bernancke helped orchestrate a half-percent reduction in a key lending rate that the Fed charges, triggering the recent surge that has seen the DJIA index grow from an Aug. 16 low of 12,845.78 to Monday, an increase of 1,241.77 points, or 9.67 percent, in exactly one-and-a-half months.

Political pressure prompted major lenders to offer relief to homeowners caught in the credit pinch and/or who were looking at increased rates in adjustable-rate mortgages (ARMs) that could force them from their homes by adding hundreds of dollars they could not afford to their monthly mortgage payments. Some of the new programs promise not to foreclose on home owners who are facing higher payments, but offer instead a chance to refinance their home loans at fixed rates. 

Turbulence in the U.S. sub-prime mortgage market came to Wall Street’s attention in late July, but the spring and summer stock market corrections were mere setbacks as the DJIA has risen steadily over the past year. Since its 2007 low close of 12,050.41 on March 5, the DJIA has gained more than 2,000 points, a 16.91 percent increase in less than seven months — or about a 29 percent annual gain.

On Sept. 18, the Federal Reserve cut its overnight interest rate and discount rate targets by half a percentage point each to 4.75% and 5.25%, respectively: the Dow gained 335.97 points (2.5 percent) to close at 13,739.39 (the highest since July), its largest one-day jump since Oct. 15, 2002 and its biggest percent rise since April 2, 2003. Some stock market analysts are predicting another rate cut later this month, which would free billions more in available credit, further offsetting the U.S. housing, credit and sub-prime problems and perhaps jump-starting the home-building market, which has languished in high inventories and decreased sales for a year.

As any astute observer of the stock market knows, many factors can affect the market, including domestic and international developments. But Wall Street’s recent confidence is an indication that gains in other sectors of the economy can offset the well-publicized woes related to housing and credit.

What does this mean to potential home buyers? It is still a buyer’s market and you can get more home for the money now than a year or two ago. Your home-buying dollar may well also go further now than it might a year from now as home values begin to rise again as the housing and credit problems fade into memory.

Former Federal Reserve chairman Alan Greenspan addressed this issue in a speech he made today in London to bankers and the British prime minister: “Lenders in recent days have been reaching out for longer-term, lesser quality assets, and that is a good sign. Is this August-September credit crisis about to be over? Possibly.”

If you're new here, you may want to subscribe to our RSS feed.

You may also Subscribe to New Homes Real Estate Listings For Sale by Email Thanks for visiting!