Gravity basically says that what goes up must come down. In real estate, luckily, when things do come down - unlike many other things - they almost never go to zero. In fact, most times pricing dips a wee bit or stagnates and then continues its upward trajectory. In the past 3 years we have witnessed extreme price escalation in many parts of the world and in the US. We should expect those extremes to subside. But, like all things real-estate-related, everything is hyper-localized and mass averages are distorting at best.
According to Bloomberg, Zillow was looking to sell about 7,000 homes as it seeks to recover from a fumble in its i-buyer business, seeking roughly $2.8 billion for the homes. It is likely to sell the houses to a multitude of buyers rather than packaging them in a single transaction. Chances are they will sell at a loss as they aggressively purchased to gain market share.
The dramatic - and not-so-drastic - price gains sometimes happen for reasons unrelated to 'hyper inflation' trends:
1. An area that had gone through an unrealistic de-valuation or stagnation re-discovered, may simply be experiencing pricing recovery, not simply escalation.
2. An area with a new audience - possibly fueled by a new industry, employer, remote-working trends, etc - may experience a new valuation based on its audience familiarity with higher home valuations and supply-demand imbalance.
3. Long Term under-supply issues and potential land restrictions. If all lots on the lakefront are built, they take on collector value. Pricing rises.
4. We have witnessed the ripple effects of an economic shutdown in 2020. This continues many, many months after the fact.Two months out of twelve can impact markets for years.
Twenty percent annualized price escalations are unsustainable. Will these sharply elevated prices drop 30% next week? NO! Usually there are very, very good reasons for dramatic price jumps. Often these massive escalations simply scale back - sometimes dramatically to please the media seeking a headline - but mostly they do not plummet, or even drop, in value. A 3-5% annual price escalation is not a bad thing at all!
