What is the connection between slowing housing market and loans with the

[yes_usman]

stock market? How come the loans on housing is affecting the stock market, what the main connection there?

Thanks!

[monkey32123]

There are several connections. First, if loans companies fold, less houses get bought. If less houses get bought, companies like home depot, and Williams Sonoma will sell less stuff. If they sell less stuff their stock goes down. Second, major banks lose money when large amounts of people who take loans from them cannot pay them back. Major investment firms like JP Morgan and Bear Stearns. There are innumerable other ways it effects the markets, but these are probably the two most significant.

[kajun]

Well, think about it....if ppl arent buying homes then banks arent giving loans...if investors arent buying property, then developers arent building houses to be sold....its a vicious cycle......if builders arent building, then the illegals are out of work. See how that works?

[spectre700]

Companies that have a) invested in housing loans or b)hedging instruments backed by these loans, or c) invested in other companies dealing with mortgaging, will lose if they are not able to get back their investment. If they are listed, these are the companies whose stocks will be sold in the stock market once the market gets news that a big number of loans have defaulted. Companies in the same industry will be affected because people fear they are exposed to the same risk. This is one reason stock prices will go down.

The recent number of mortgaging companies experiencing problems reflects on the state of the country's economy. The more confidence there is in the economy, the more willing people are to invest in the stock market. If there are doubts amongst the investors, they will tend to move their money to safer, less riskier forms of investment like US Treasuries. This means selling their stocks to get their dollars back and then putting their dollars in Treasuries. This is another reason stock prices will go down.

[Frank Castle]

Back in the day if you wanted to buy a house you went to the bank for a loan.

Back in the day if you wanted to build a house you went to the bank for a loan.

Let's pretend for a minute you asked for a loan to build two houses and sell them.

The houses are now finished but you cannot sell them and you cannot pay back the money to the bank.

If you cannot pay back the money they cannot lend that money to somebody else.

One customer wanted to buy one of your houses but the bank turned down his loan because the bank does not have enough money to lend because you have not paid your loan.

Most banks are public companies and when people like you don't pay their profits go down and you now what happens if the profits are down?

THE SHARESHOLDERS SELL THEIR STOCKS.

This is a very simple example.

If you need a more detailed answer you can contact me.

[Treebeard]

Companies use the interest from the loans to create more loans for other businesses and other purposes, and so, when the housing markets melt down there is not as much money to loan out, and that has a ripple effect on everything else. Also, consumers who have rising interest start curbing their expenses, so the demand for products go down, and so companies suffer.