The Butterfly Effect is a term used in chaos theory to describe how a minor flutter of a butterfly’s wings can trigger a series of events. I have seen the Butterfly Effect in real estate with both negative and positive results.
Distressed properties can drag the prices down of all resale and new homes in a community. Foreclosures can and do, contribute to the pricing of new inventory as it becomes available in a community, because they are competing with aggressive prices. Distressed properties elongate the impact to a community even after they have sold. They can have a ripple effect as a community’s new inventory is priced against the distressed properties as sold comparables, so it takes longer for the community to bounce back.
A ripple causing change in a given market can be positive as well. A few houses in the neighborhood get remodeled. A commercial building fills with a coffee shop, wine bar and cupcake bakery. The flutter of hip, trendy happenings brings a new a fresh new perspective, to a once settled area. The neighborhood slowly starts turning and house prices go up as it is now a modern, progressive place to live. This happened years ago in what is now the trendy 78704 zip code and is currently happening in East Austin.
Both of these Butterfly Effects happen not only in neighborhoods, but condominium communities like The Island on Lake Travis as well.