How is the Financial Crisis Affecting Local Home Sales?
The question on all our minds this week is, “What effect will the collapse of Lehman Brothers and the rescue of Merrill Lynch have on our local real estate market?”
Quite simply, moves in the real estate market cycle happen as a result of changes in supply and/or demand. Those changes occur due to a cause and effect relationship between the local economy and consumer confidence.
For example, the local (South Peninsula) real estate market had been “very good” for sellers during the 2003-07 timeframe due to a strong local economy, low interest rates, and low numbers of homes for sale. In late 2007, the real estate market slowed to a “good”, but more balanced market as the sub-prime mortgage debacle unfolded and consumer confidence was shaken. That is, demand weakened. The number of buyers more closely matched the low number of homes for sale.
We believe the current headlines of possible financial disaster will cause more homebuyers to wait on the sidelines (at least until after the elections). If any further calamity hits the financial markets, we will begin to see local home prices fall. As a matter of fact, homes with location “issues” are already decreasing in value.