Unforeseen circumstances…
Prior to every market correction that has ever occurred, the general public has been told by countless “experts” that it wasn’t going happen. And for the most part, the reason given is typically the same… Because “Things are different this time.” We are told that the economic environment is better, that demand is more sustainable, that supply is years away from catching up, or that in the case of the current COVID economy – that the world and people’s habits have changed permanently…
But despite the fact that many things may lead one to believe a correction cannot or will not happen, the reality is that they always do. Some are obviously worse than others, but the economy is cyclical and it cannot continue in an upward manner in perpetuity. It just doesn’t happen… So, what will cause the corrections of the future? Will it be insurance costs? Inflationary pressure? Interest rate increases? There is no shortage of potential triggers for a change and for every person claiming that the market will continue its current upward trend, there are an equal or greater number making their own predictions of how and when the correction will occur. But as with those that deny the potential for change, those that predict exact causes are typically incorrect in their assumptions as well.
Perhaps this has never been more evident than it is now. There is a staggering amount of information available and a never-before-seen ease in accessing it. Unfortunately there is not only good and accurate information, but false and misleading as well. And at the end of the day, there are so many things that remain unknown and out of our control, that any prediction for or against a changing economy is really at best a moderately educated guess.
One of the best explanations of this comes in a fantastic book by Nasim Taleb titled The Black Swan in which he makes the case that despite the fact that nearly all signs may be pointing toward a certain outcome, all it takes is one Black Swan (an extremely rare, or unforeseen) event for things to go in a drastically different direction.
As an example of this, I remember sitting in a meeting just months before the last housing crises hit, and listening to a real estate economist state something along the lines of “We predict that demand will remain high in the housing market and that prices will continue to rise moderately over the next twelve to twentyfour months.“Not long after this, demand for houses basically came to a screeching halt and prices began to fall at a rate that we had never experienced before. Ironically it was the same economist that I remember a few years into the crash telling another meeting of the same group of people that “Market factors that nobody could have seen coming” were the cause of the housing crises.
So as we listen to the many, many voices telling us that it is different this time, I can only agree with them partially. Despite all the data to the contrary, a correction will inevitably occur. The only thing that will be different is what ends up causing it, and how it will affect those of us that will be living through it.
Dan Bosch is a Realtor Associate with RE/MAX of Chico and the team leader for the Premier Professionals Real Estate Team... Dan specializes in residential and investment properties. He can be reached at (530) 896-9330 or via email at danbosch@sbcglobal.net. You can also follow him at @dan_bosch on Instagram