There is growing evidence that lots of what happened in the markets in the past three years is indeed.....transitory! Soaring inflation is coming down.... most commodity prices are down.... soaring equity prices have come down..... excessive demand for cars, new and used, is down..... and yes, many home prices are coming down and will drop further. The extreme demand - and extreme pricing surges - we witnessed between 2020 and today are turning out to be transitory.....just a moment in time. However, 'the moment' was longer than we had anticipated.
The word 'transitory' was universally berated when used by the Fed to describe the recent inflation surge, but maybe they were partially accurate too, except for the fact that they did not clearly identify the timing. Already many prices are coming down, some are staying stagnant, and others are rising more tepidly. Our radically impatient expectations of anything may be equally excessive: when we say transitory these days, we demand days or weeks, when maybe we should be looking at years instead?
The gains made during the COVID era - 2020 - 2022 may be eroded or completely eliminated as markets re-adjust and re-balance. Artificially fueled markets usually correct themselves, often corrected artificially too. Many of our clients watch their investment portfolios daily (some hourly!) and many speak to their investment advisors on a very regular basis, probably more often than we speak to them. Many/most equity prices are sharply down. Even super-high-quality equities like AMAZON have largely eroded all Covid gains. Many industries - including many sectors of the real estate world - that benefited largely from the Covid era have dropped notably.
None of our clients can honestly justify being surprised that some of their homes are worth less today than they were 6-8 months ago, especially those with homes in areas that experienced massive surges over the past 3 years. Some of that 'surprise' is often posturing or wilful ignorance. Or delusion. There is enough evidence everywhere that most assets globally are experiencing a period of rebalancing after excessive, unrealistic, often artificially fueled gains with lots of kinds of fuel including cheap, excessive capital, pent-up demand, government stimulus, and false narratives about markets that fueled some speculative thinking. The wisest analysis in evaluating current valuation should be focused on just how extreme the past 3-year pricing surge was and what exactly fueled it? Was it long-term trending, or a more short-term reactionary response?
Homes are not that different to most other assets: their pricing is almost always defined by supply and demand. When the demand side has less capital and less confidence, and when the supply side increases, even slightly, pricing usually adjusts too.