Real Estate Real Value

---

I project a potential market correction, estimating a 20% or more decline in real estate prices compared to other like assets over the next few years. Importantly, this decline in real terms may be less immediately apparent because of shifts in the dollar’s value. As inflation persists and the dollar’s purchasing power decreases, nominal prices may appear stable or even rise slightly, masking a real decline in value.

For instance, if you buy a house today for $100, and in five years sell it for $110, but inflation reduces the dollar’s value so that $1 today is effectively worth only $0.50 in five years, the real value of the house has actually decreased. This scenario underscores the potential misalignment between nominal price trends and true purchasing power, particularly in an inflationary environment driven by Federal Reserve policy and monetary expansion. The Federal Reserve’s M2 money supply has grown from approximately $13.5 trillion in November 2017 to about $21.2 trillion in September 2024, reflecting significant monetary expansion (FRED).

• Record-High Prices: As of the latest data, the S&P CoreLogic Case-Shiller U.S. National Home Price Index reflects a multi-year high. These inflated prices are particularly concerning when adjusted for real inflation, showing a decreased purchasing power for most buyers. (S&P CoreLogic Case-Shiller Home Price Indices)
• Mortgage Rates: The average rate for a 30-year fixed mortgage remains elevated, fluctuating around 6-7% in 2024. High mortgage rates are a significant deterrent for potential buyers, limiting demand and suppressing affordability. (FRED, Mortgage Rates)
• Reduced Sales Volume: Home sales are at historically low levels. Homeowners who are "locked in" to lower mortgage rates are reluctant to sell, which results in lower transaction volumes and, for those who do list, extended time on the market. (National Association of Realtors)

• Rising Days on Market: Homes are now sitting on the market for longer periods. National statistics show a steady increase in average days on market compared to recent years, indicating a cooling in demand. (Realtor.com Housing Market Data)
• Inventory Build-up: In high-priced markets, such as California and New York, inventory levels are reaching multi-year highs as sellers face difficulty finding buyers at current price levels. This trend is concerning, as an eventual inventory oversupply could create downward pressure on prices if sellers begin to compete aggressively for buyers. (Redfin Housing Market Data)

• Psychological Triggers: When homes sit on the market for extended periods without selling, it may trigger a psychological shift among homeowners. If sellers perceive a looming decline in home values, we could see a "rush to sell" phenomenon, increasing inventory and initiating a competitive price drop.
• Comparison with Historical Trends: This pattern has historical precedence, most notably in the 2008 housing crisis, where price declines accelerated as inventory flooded the market. Although circumstances differ today, similar behavioral patterns among homeowners could emerge, especially if economic pressures mount. (Harvard Joint Center for Housing Studies)

• Broader Asset Impact: Based on current data and historical corrections, a price adjustment of at least 20% across real estate and comparable assets aligns with prior downturns in overheated asset markets when economic or financing conditions shifted sharply. However, when adjusted for real inflation, these declines could appear less severe in nominal terms, as the devaluation of the dollar obscures the real loss of purchasing power in housing. (Bureau of Economic Analysis, Inflation Data)

• Goldman Sachs Forecasts of Continued Growth: While institutions like Goldman Sachs project moderate growth (approximately 4.4% annually through 2027), these forecasts assume sustained demand and stabilized interest rates, which could be overly optimistic. Given current pressures, including the possibility of economic downturns, market conditions might not align with these predictions.
• Supply Constraints Argument: Some analysts argue that a housing shortage will continue to support prices. However, as inventory gradually rises and buyer activity cools, a tipping point may arrive where supply outpaces actual demand. (National Association of Home Builders)

Based on the convergence of high prices, elevated borrowing costs, declining buyer activity, and the potential for a market-driven increase in inventory, I anticipate a significant correction in U.S. real estate and comparable asset markets. This forecast, adjusted for real inflation, acknowledges the limitations of current economic models and recognizes the potential for behavioral factors to trigger an inventory-driven downturn.

This analysis provides a data-backed perspective for investors, homeowners, and policymakers to consider the risks inherent in today’s housing market.

1. S&P CoreLogic Case-Shiller Home Price Indices
2. Federal Reserve Economic Data (FRED)
3. National Association of Realtors (NAR)
4. Realtor.com Housing Market Data
5. Redfin Housing Market Data
6. Harvard Joint Center for Housing Studies
7. Bureau of Economic Analysis, Inflation Data