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The paper discusses the connection between stock and real estate markets and refers to the event, which has to take place at the end of this week and implies a separation of these economic environments. In the first place, a combination of the article and knowledge acquired during the lectures revealed that REITs were popular due to their high return on investment.
Nonetheless, the changes in the economic environment, governmental interventions, shift in sales of new homes, and need to support the banking reasons were the primary causes of REITs decrease in popularity. Thus, a mixture of these factors emphasized the importance of the separation to ensure the stock exchange and minimize the impact of REITs on the banking sector.
Nowadays, financial market experiences substantial changes in its functioning, as it is dependent on various factors. The interdependence between the real estate and trade is one of them, as it determines whether any of these markers can offer favorable conditions for prosperity and investment. Consequently, it is critical to discuss the role of Real Estate Investment Trusts (REIT) in the economic stability and their separation from the financial market at the end of this week with the help of the article Why an Obscure Change in Market Indexes Will Add to the Turmoil This Week by Lahart (Lahart, 2016).
Description of the Article and Event
As it was mentioned earlier, the article tends to focus on the event of dividing real estate and stock markets into two separate entities. In this case, S&P Dow Jones Indexes and MSCI proposed the need for creating two autonomous markets for stocks and real estate (Lahart, 2016). In this case, the author vehemently refers to the nature of REITs and their beneficial impact on the economy.
The primary advantages were related to the liquid share in the real estate market and a high percentage of return on investment (Lahart, 2016). Additionally, they ensured high-income levels and defined the popularity of REITs among the investors. REITs long-term orientation and rates assured their success and profitability in the recent past (Lahart, 2016).
Nonetheless, the alterations in the economic trends were the primary reasons for defining the necessity for intervention. According to the article, the major changes were associated with the actions of the Federal Reserve to improve the condition of the banking sector (Lahart, 2016). Simultaneously, the new homes’ sales experienced a dramatic shift (Lahart, 2016). A combination of these aspects damaged the profitability and image of REITs and implied the need to separate stock and real estate markets.
Analysis of the Event
Despite the clarity of the provided arguments reflected in the article, it is critical to conduct the profound analysis and assessment of the event. In the first place, determining the reasons for the popularity of REITs is vital, as they are the primary connectors between stock and real estate markets. Apart from the causes mentioned in the article, the success of REITs pertains to the low prices for mortgages and high rent rates.
Consequently, investing in this segment guaranteed a high and rapid return on investment (Lahart, 2016). In this case, low sales in the real estate market were the primary definers of their popularity among investors. The interdependence between these economic sectors was reflected during the class and assisted me in identifying a critical reason for the popularity of REITs.
One cannot underestimate the need for change, as it was discussed during the class that the government is a pivotal agent in finding the economic balance. Consequently, in this case, it is important to refer to the fluctuations related to different stages of economic development. The Federal Reserve tended to focus on the policies that will protect the banking sector by increasing the overnight rates (Lahart, 2016). This aspect will decrease the profitability of REITs due to the domination of the banking sector in the stock market. It was possible to understand this connection with the help of rules of supply and demand and rivalry of firms discussed in the class.
Simultaneously, any economic changes have a dramatic impact on the stock’s market-leading to its fluctuations, and this fact implies that governmental intervention is necessary. Due to the variations in the effectiveness of REITs and the rise of new homes’ sales, the continuation of this coexistence will pertain to the market instability.
It will ensure the stability of stock exchange and create favorable environmental conditions for banks to regain their market shares. Based on the factors provided above, the stabilization of the national economy is one of the primary rationales for S&P Dow Jones Indexes’ and MSCI’s actions associated with separating real estate from the stock market. It will ensure the equilibrium of supply and demand sides, help enhance the country’s GDP, offer support to the most profitable sectors, and comply with the theoretical knowledge acquired during the lectures.
Conducting an analysis of the events contributes to the understanding of the impact of various factors such as political intervention and changes in demand and supply curves’ slopes in other markets. The event of separating real estate from the stock market by S&P Dow Jones Indexes and MSCI. In the first place, the coexistence of these markets was associated with the financial profitability of REITs.
With the help of the knowledge acquired during the class, it was possible to understand the interdependence between different components and participants of market interactions. It revealed the significance of governmental intervention in the functioning of the national economy and the influence of the stock market on the banking and real estate sectors.
Lahart, J. (2016, September 11). “Why an obscure change in market indexes will add to the turmoil this week.” The Guardian.