(FORTUNE Magazine) – For Chris Shenon and his wife, Amanda, Nasdaq's recent dive couldn't have come at a better time. The thirtysomething couple had been looking for a house in Silicon Valley for months but had been beaten by rival bidders. Then, when the Nasdaq stumbled in early April, they suddenly faced just two other bidders, instead of the usual ten. "The market had been so tight," says Shenon. "Suddenly the floodgates opened." Still, they paid 16% above asking price for a three-bedroom ranch house in Los Altos, Calif.

Housing prices once seemed invincible, but as stories like these surface in New York City and Silicon Valley--the hottest markets in the nation--there are preliminary signs that they're softening. Sales in San Francisco and Silicon Valley declined 6% from March to April. Brokers are witnessing subtle changes in behavior: Buyers are dropping out of bidding wars or letting almost-sealed deals fall through. Inventory is increasing--as sellers, scared that their properties will lose value, rush to market. "People are having a knee-jerk reaction to the [stock market's] ripples," says Barbara Corcoran, chairman of one of Manhattan's largest real estate companies.

Today rising interest rates aren't the main culprit; the fitness of the economy, especially low unemployment rates, has countered their effects. With so much money in the stock market, it's Nasdaq's jolts that are wreaking a bit of havoc. Says Karl Case, professor of economics at Wellesley College: "There's no question that the decline in stock markets is going to have an impact on housing prices." If the market acts as it has been, prices will flatten but not drop off. A severe Nasdaq downturn, however, could ravage the real estate market.

The only question is how long it will take. The housing market didn't soften until 18 months or so after the stock market's crash in 1987. Today you'd think the effects of a crash would be immediate and cataclysmic: Buyers would lose their reserves for down payments, high interest rates would make financing prohibitive, and sellers would try to unload properties they bought at the peak of the market.

Not quite. Prices in the upper ends of the market will soften quickly; they're incredibly Nasdaq-dependent. The rest of the market will experience a more gradual fall. Why? Because even if most buyers can no longer afford down payments, sellers won't lower prices until demand is fully tapped. Says Chris Mayer, a professor of real estate at the Wharton School: "It takes sellers up to a year to fully recognize changes in the market." Changes in the mortgage market may ease the shock, says Forrest Pafenberg of the National Association of Realtors. Many buyers are already switching to adjustable rates to avoid mortgage rates that are at five-year highs.

Bottom line: no need to panic--yet. The housing market is following the rest of the economy--cooling down from a very overheated state.