Roller Coaster Ride.
The last few days have provided some of the most mesmerizing stock ticker-watching of any period since the end of the recession as the global stock markets have taken a monumental shot to the proverbial jaw. Since Friday, the Dow Jones Industrial Average has seen three consecutive trading days of triple-digit losses based on concerns about the slowing economy in China and how that may impact the U.S. economy. This is the biggest drop in the market in at least the last 7 years.
I don’t know about you, but I have been glued to the Bloomberg Channel watching the market thrash about, trying to find some sense of stability. The swings in momentum have been simply breathtaking.
For those with significant equity positions in the market going into last Friday, it’s obvious that these are gut-wrenching developments. Losing 10-15% of one’s portfolio in roughly the same period of time as a Giants homestand must be tremendously unnerving. And yet for others, it may present an opportunity to roll the dice and buy some favorite stocks on their weakness.
But the question that I have heard repeatedly since Friday is this: How will impact the local real estate market? The answer is this — it’s too soon to tell. Here’s why….
Two Key Components.
The recent market volatility will impact today’s Peninsula home buyers in two basic ways: Financially, and emotionally. Let’s take a quick look at both.
- Financial Impact: When it comes to the Peninsula real estate market, the financial impact of the plunging stock market will vary depending on what communities you are looking considering. For higher-end communities like Palo Alto, Hillsborough, and Los Altos Hills that have been prime destinations for Asian investors, I believe they will feel a more acute impact since many of their purchases are all-cash, and often from foreign buyers. In fact, many agents that specialize in these communities have sensed a pull-back from foreign investors for a number of weeks before the market hit the skids. For communities like San Carlos, Redwood City and Belmont, I believe that the impact will be less. While home buyers will certainly feel the sting of the devaluation of their portfolio, the fact remains that most of these buyers are still taking out loans that will represent at least 60% of the funding for their home purchase. So the impact will be a little less severe, simply because their purchase is not 100% dependent on the value of their portfolio. In fact, one could even argue that the stock market correction may help buyers in the long run, since the Federal Reserve may choose to delay their widely-anticipated rate hike that is slated for next month.
- Emotional Impact. This is a far more subjective criteria, and it will vary from buyer to buyer. Much depends on one’s market particular philosophy (i.e., is this a normal correction, or the sign of a bigger trend?) and of course, how much of their purchasing power is currently tied up in the market. Much like the pricing in today’s housing market, memories of what has happened over the past week will be very short if the market recovers most of its value in short order. It’s just like the home buyer who was worried that he overpaid — until the following week another house sold for even more.
In a nutshell, until it is determined whether this was just a blip or an indication of much deeper problems with our complex, global economy, I think it’s simply too early to tell what impact it will have on the local real estate market. It’s obviously not going to be positive, but I don’t see buyers jumping off the train just yet, either.
If you are a home buyer in this market, how have the events of the past few days impacted your home buying strategy?
Welcome to to the White Oaks Blog — the most widely read blog dedicated to the San Carlos real estate market! Have blog updates sent to you automatically by subscribing for free by clicking here. Be sure to follow the White Oaks Blog on Facebook at https://Facebook.com/WhiteOaksBlog , and on Twitter @WhiteOaksBlog.
Don’t miss a single update!