How does the housing market affect the stock market so much?

I heard that the housing market being low in sales and with the forclousure market crashing, it is affecting investors so much that they are moving money out of equities (stocks) and investing more in safer investments. Thats why the stock market has been down so much in the past week.





How does this happen? I was reading about it, but I didn't really understand. Are investors pulling out their stocks from big lenders? How exactly does it affect the stock market? I need help understanding it in normal terms that make sense.





Please advise, thank you!!|||It's purely psychological. The "housing market" is really the "real estate" market which accounts for a lot of money. There is also a lot of related industries which is affected if the real estate market goes down. First is the home builders or construction industry (contractors), then there is the materials suppliers, then the mortgage industry which makes loans to buyers and then there's the real estate agents, title companies, escrow companies, home insurance companies, furniture companies - all their jobs hang on how well the housing market is doing. They were in fear for the past 2 years when the housing or real estate market peaked and began sliding down. Investors in the stock market finally decided that there is too much fear and decided to sell their stocks. Selling causes the stock market to drop.|||it help many sector to grow|||You may get a lot more technical and expert answers on here, but one of the primary problems is that the stock market surged way too high to begin with. The fundamentals haven't changed that much in the last 2 years, but for some stupid reason the stocks ran up from under 12,000 to over 14,000. They got way overvalued, and this "drop" is really more of a correction back down to where their values really should be. It surged from 13,000 to 14,000 really, really quickly for no good fundamentals reason.|||The market is money driven. The big losers in this market are Hedge Funds and those with holdings in high risk debt notes. Its high risk for a reason. the first poster is correct as to an overheated market (especially in emerging markets) but I am NOT ignoring these corrections some of these etf's I am looking at after executing my stop marks. Are near the prices when I first bought them several; months ago. This is why you have to be diversified minimize your risk in the market. I haven't decided if I'm getting backinto all world ETF's if I do it will be either CWI or VEU. Another one I am seriously looking at is IPE its the ETF of the TIPS. I haven't decided on a 3rd option yet but its time to pare down my risk a bit. I don't see a huge drop next week yet but I also do not see a huge run up either.|||Home Depot (A Public Company) sells things to buy houses.


Lowe's (A Public Company) sells things to buy houses.





If the companies (Public or Private) building the houses do not build too many then both companies make LESS MONEY and this means LESS MONEY for their shareholders and this means their stock prices drop.





This example is simple and only mentions two companies.





If you analze everything included in a house and if you consider most big companies are public then you will realize this affects thousands of public companies.





The local electrician used to work at 5 houses per week and now he only works at 4 houses per week then this means LESS MONEY for him and his family.





He does not invest in the Stock Market but he used to take his family to McDonald's (A Public Company) twice every week.





Now he only can take them once per week.





Everything is connected to the Stock Market.|||merc has a pretty good answer, but it is perhaps a little more complicated than that. I however am in complete agreement with what he has described. The stock market is driven by fear and greed. At the moment fear has replace greed as the driving factor. The fear is that the mortgage problem is going to snowball into a recession and recession is a very dirty word on Wall Street. Two hedge funds have already gone under. About 30 sub prime lenders have also gone under. Home builders are loosing money by the buckets full. There is fear that the big banks are going to take a big hit from this mess. You may have noticed already that many of the financial stocks are breaking through to new lows. Investors are bailing out en mass. Alll the leveraged buy outs that were toted a couple of weeks ago, all of a sudden can not sell their junk bonds to pay for the buyouts. The banks that lent them the bridge loans are now stuck holding the bag so to speak. I do not know if you remember or not, but back in the 80s the government was stuck with a bunch of S%26amp;L bailouts. They many now be stuck bailing out BAC, C, etc.|||Its the fear of a credit crunch. The fast increasing worldwide money supply is the only reason why the markets has risen and if it dries up there is nothing to support the price of equities.|||The housing market is an indicator for much more than just the health of the housing sector! If the housing market is down that most often means that consumers does not have enough money to pay for houses and therefore not enough money for other retail purchases. That is why I would stay away from the retail and the housing markets! For example, Wal Mart, Target and Costco are all down over 4% in the past 5 days! Additionally, the average American consumer is in a deep amount of debt with terrible credit that contributes to the constriction of spending and the consequentially stock market crash. Hope this helps!