Will the impending financial meltdown in Europe affect our local real estate market psychology?
It’s not certain if they will let the disaster unfold – they might just employ more can-kicking devices. But if you see European countries going into full financial-crisis mode, and people rioting in the streets, will it change how you feel about buying or selling a house?
Some will say that mortgage lending will be impacted, but we’ve seen how the government has supported banks, and housing in particular, so there should be money available – at cheap rates!
If you look back at two crisis that were closer to home, 9/11 and the U.S. financial crisis of 2008, you’ll see we survived both fairly well.
A month after 9/11, the local housing market was right back on its tracks, though it was the initial stages of the boom years. The financial crisis during the last half of 2008 didn’t bring mass hysteria to the San Diego market – it’s been a general unwinding since.
Here are the detached and attached sales for the January through October periods of each year:
| Year | SD Co. Sales | SD Co. Avg. $/sf | NSDCC Sales | NSDCC Avg. $/sf |
| 2009 | ||||
| 2010 | ||||
| 2011 |
In North SD County’s Coastal region, with a 5% dip in pricing, sales are 14% higher than they were immediately following the last financial crisis – which was closer to home. If anything, a world-wide financial crisis or resulting recession will probably cause more paralysis.
For there to be drastic movement in our local real estate market, sellers would need to panic. But because the government and banks insist on moderating the free market, there is at least a psychological cushion. It looks like we’ll just muddle through instead.
If credit did indeed freeze up because of a Europe bust then housing could be in trouble. If it doesn’t freeze up and FHA/Freddie/Fannie are there to provide loans we’ll probably continue to see what we’ve been seeing.
I more worried about all of the freshly minted real estate investors. I’ll just rent this out and then sell it for a profit later. There’s no emotional attachment in those cases and they’d be the people that potential cause the panic scenario. Look how fast stocks can fall. Of course that would apply mostly to low end real estate. North county would likely be spared that potential problem.
The research I want to see is the number of real estate investors who buy properties in their own name versus those who formed corporations to do so.
Much easier to walk away when it doesn`t affect your credit or you don`t have to continue to fund a lost cause.
Another financial crisis is likely to chip away at buyers down payment savings (lower prices) and retirement savings (more pressure to sell). ZIRP might continue short term (low mortgage rates) but I have my doubts about how long this can continue.
One point that could be made is that people that are in a position to buy- i.e. have money in the bank or have nice cashflow are most likely in “preservation mode”.
They want to preserve what they have (i.e. not spend). Is there a great deal on a house? Maybe, but there are some nice deals on used sports cars as well. In both cases they may sit back and say “I’m in no rush” no matter how sweet the deal might seem.
The daily headlines (MF Global anyone?) only reinforce this attitude/world view.