Vacation homes such as this one in Branford sometimes enjoy increased marketability due to consumer nesting during uncertain economic times.

Industry experts and insiders are divided as to what the threat of war means to residential real estate. Some argue that the uncertainty may have a positive effect, while others see nothing but rising interest rates and decreased sales.

With President Bush pushing for an invasion of Saddam Hussein’s Iraq, consumers are left in a holding pattern, unsure of if and when to spend their money or sell their homes.

Donald Klepper-Smith, chief economist and director of research at Scillia Dowling Natarelli in New Haven, suggests there may be a silver lining hidden in the dark cloud of war.

“Right now there is so much uncertainty in the economy created by the Iraqi situation and this exogenous shock on the economy. This has created a situation where consumers are reluctant to spend and businesses are reluctant to invest in capital spending, creating an opportunity for the Fed to lower interest rates another 25 basis points,” said Klepper-Smith.

However, he was quick to point out that the economy is not simply rescued by low rates, because otherwise the economy would have improved some time ago.

“It’s not just about interest rates, but the ability to carry that note forward,” said Klepper-Smith. “But perhaps this situation can actually create a more favorable environment on the mortgage side and we could see rates coming down a tiny bit.”

Noting that the country is experiencing the best mortgage rates since the Kennedy administration, and that Connecticut reported roughly 9,600 housing units sold last year, Klepper-Smith predicted that approximately 9,500 units would sell in 2003.

“In a strange sort of way, if all of these certainties come to bear and the stock market continues to under-perform, people will look for alternative investments, and real estate can be appealing because it’s more tangible, more real,” he said. “Housing presents a clear alternative, so we could perhaps potentially look at 9,400 to 9,600 units this year.”

Barbara Pearce, president of H. Pearce Real Estate Co. in New Haven said, “War temporarily depresses people’s consumer purchases. Any kind of uncertainty does that if you think the issue is going to be resolved in the short term. People wait to see what happens.”

Pearce noted that following the terrorist attacks on Sept.11, 2001, real estate sales were paralyzed for several weeks. Sales resumed shortly afterward, however.

“After some amount of time, something becomes a long-term issue and people get back to their old habits,” said Pearce. “The same thing happened before the Gulf War, and no one bought anything. After the war, sales spurted up, and I wouldn’t necessarily say that it’s because we won.”

‘Looking for Answers’
In a report issued to her agents, Pearce wrote, “In this case, the threat is more protracted and less clear. We have already essentially been waiting since Sept. 11, 2001, to see what would happen. Therefore, I predict that there will be less of a surge and less of a clear resolution, but probably less of an effect.”

She continued, “The way in which war will affect real estate is in its effect on the economy. Our economy has been sluggish at best. The state budget crisis, and the proposals for the new budget will have a definite negative impact. On a national level, war will be financed through deficits, which will eventually lead to higher interest rates.

“Low interest rates are the primary reason for real estate’s boom during everyone else’s bust. Any rise in those will at least slow the spate of investment buying. And of course, we are a cyclical industry that has been at the top for so long that we are overdue for a decline. All of this leads me to think that it is the economy on both a local and national level that will have the greatest likelihood of hurting our market in the near future.”

Pearce also noted that typically there is an increase in “nesting” following uncertain times. Remarking that people often look to be surrounded by family and friends in a post-crisis situation, she said second-home sales typically see an increase.

“In an uncertain world people will turn to what provides the most comfort, and having a vacation home with children and grandchildren with you is the real estate equivalent of mashed potatoes,” she said.

At the heart of all of the uncertainty are the homebuyers and sellers, and they have increasingly been turning to their real estate agents for advice on how to handle this complex situation.

“There’s definitely uncertainty out there,” said Karen Krotki, regional sales manager with Guilford-based William Raveis Real Estate. “I don’t know of one agent that hasn’t heard concerns from their buyers and sellers feeling very uneasy about the events and how they will affect the market.”

Noting that she doesn’t “have a crystal ball,” Krotki said she tell buyers and sellers to look at the market activity over the past few months.

“They should be comforted by the fact that the market is still strong and moving forward,” she said. “We point to some real statistics to help ease consumer nervousness.”

Krotki said buyers and sellers appear to be more nervous during this time of uncertainty than during an actual war, such as the Gulf War in the early 1990s.

She also noted that Fairfield County doesn’t experience a nesting cycle, but that is primarily due