Despite what many people believe, there isn’t a direct connection between stock market performance and real estate values. It’s the overall health of the economy (which prior to the events of the past two weeks, was still considered relatively strong) that ultimately affects them both. As long as consumers feel confident about their jobs and income, they will continue to spend—and that includes buying real estate.
Among other things, the strength of the real estate market is impacted by treasury bond prices, which are correlated to mortgage rates. When the stock market and other asset classes start to see a lot of volatility, investors will move their cash to bonds for stability and security. As demand for treasury bonds increases, however, bond prices go up and their yields (the interest they pay investors) fall. And that pulls mortgage rates down, too.
It’s worth noting that the catalyst for today’s economic situation is very different from the 2008 financial crisis, which was directly caused by issues in the sub-prime lending market. During that recession, sub-prime mortgages were bundled up and sold for much more than they were worth. Ultimately, real estate speculators let homes financed by these mortgages go into default, and these bundles of mortgages—called credit default swaps—lost most of their value, bankrupting large investors and starting a domino effect that rippled through all aspects of the economy.