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San Carlos Real Estate August 27, 2015

How Will the Stock Market Woes Impact San Carlos Real Estate?

by Chuck Gillooley

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?
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Comments 2
  • As a financial advisor at a large financial institution, and a current active shopper in the San Carlos market, I think you have found the demographic you are trying to reach here. In my personal situation, after losing 10-15%% of brokerage assets in the span of a week, I can tell you that there is an immediate effect both financially and emotionally. First you have the effect on your prospective pool of money that is meant for down payment and improvements to the prospective acquisition, and importantly for some shoppers their post closing liquidity which can be a limiting from the lenders standpoint. Then you have the retirement accounts, college funds, ect. which are less directly involved in the buying decision, but which start hampering the confidence level and overall feeling of financial well being. Recent market events might not be enough to derail the type of property I’m targeting, but it is directly and rapidly reducing what I have left over after potentially winning a bid. Am I still feeling as comfortable shopping in the same price range? Maybe not so much. Am I less inclined to be as aggressive in my bidding? Maybe so. Do I ask myself what if we have another 20% down move in the market? Will I be financially stressed? most probably. My feeling is that the competitive housing market in San Carlos, combined with relative stock market strength, has made people more aggressive and willing to push their financial limits in the past year or two. I think recent events will jog peoples memories of 09′ and may bring about a more immediate sense of caution or sobriety in the bidding process. In my case I suppose it is more a hope that it might scare a little of the competition, one can dream anyway.

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