Since COVID’s home-value spike, everyone has been asking when we’re going to see a correction. The last time home prices ran up, they proceeded to fall off a cliff. Certainly it’s going to happen again, right?

We’re now six years beyond the start of the current run-up and as recently as this weekend I had a friend ask when they are going to come down, so I thought I'd share with you what I shared with him...

Outlier Events

Let's just set aside the outliers for a minute. Even though this country has gotten use to the outliers no longer being rare, we still can't predict what those events or when those events are going to be. Nor can we determine what direction they are going to drive the market.

Few real estate experts (if any) predicted a global pandemic was going to cause the government to push six trillion dollars into the system. That's $6,000,000,000,000.

I bring this up because this is precisely the oddity about this last spike in home values.

Why Is This Real Estate Market Cycle Different?

FRED charts are dearly loved by many data geeks. I enjoy looking at their real estate charts on occaison, despite them being out-dated and typically too broad to be helpful, they do provide a credible source of past data. But today I'd like to look at a Money chart, specifically the M2 chart.

This chart and the home value chart above cover the same timeframe.

An interesting observation is that during the 2003 to 2008 run, the money supply chart was nearly unaffected. Home values went up caused by credit loosening, but they were obviously unsustainable.

When you look at the COVID run up that was caused by an increase in demand due to low low low interest rates, you can see the money supply in the country also grew... almost identically; both peaked in April of 2022, both came down afterwards, and both continue on an upward trend. Makes me wonder if this big difference is why the latest increase has held for over 6 years now.

When are home prices going to come down?

What goes up must come down, right? I believe in that concept. Knowing WHEN is the magic. Being able to time the market is nearly impossible, but I bring the Money Supply chart to the conversation because I'm honestly curious if you think this is a valid point to sustain home values.

What's it going to take to bring down the money supply? I'm guessing home value decreases will be near it.

Hold the press! Foreclosures are rising?

More on that in my next article...