Exactly What Is A Market Correction?

If you looked up the term Market Correction in a reference book or on-line, you would see: “A market correction is a short-to-medium-term decline of 10% to 20% in a major stock index or individual stock from its most recent peak. These are considered normal, healthy market events that reduce overinflated prices and bring valuations back in line with economic fundamentals, usually lasting weeks or months.” Here are some key factors influencing market corrections: Magnitude: A drop of at least 10% but less than 20%. Duration: Temporary decline, typically lasting a few weeks to several months. Purpose: Calms overinflated markets and resets valuations, often occurring when prices have risen too quickly. Frequency: They occur relatively often, sometimes multiple times in a decade, and are seen as a natural part of the market cycle. Distinction: Less severe than a bear market (a drop of 20% or more) or a market crash (sudden, drastic decline).Sadly, in the world of Real Estate it’s not quite that easily defined. Especially when you have a myriad of opinions on the topic. Just confuses things. We are in the midst of a huge market correction in the world of Real Estate. Because this crazy business always goes in cycles (and always has). When something goes up it is bound to come back down. And let’s face it. Things have been going up,up,up for a number of years so you just knew there was a correction lurking in the bushes. And here it is. Real Estate usually goes in 10-year cycles but with crazy happenings the last number of years, there was not your normal cycle in play. The last downturn was 1988 to 1998 pretty much. We sold, bought, sold and bought through that 10-year period and let me say it wasn’t pretty. But I learned a lot. 1989-91 was particularly brutal. Businesses were cut back on lines of credit drastically and more than a few went under. People were losing their homes because they simply couldn’t afford them any more. Then we hit the new millennium and bam the upward trajectory started. With the exception of a flat period in 2008/09 the world of RE has been on the rise steadily. Add in the pandemic and you have a recipe for disaster. Which is basically what we got. People that overpaid for homes in bidding wars because they could “afford to” with interest rates so low. A lack of inventory that fuelled the fires of bidding wars. Under all this was a feeling of unease and tension because the pandemic had never been experienced before at this level. The overbidding/over paying lingered like a bad hangover for a couple years until 2022/23 when things took a decided turn for the worst. Interest rates started to climb crazily with no end in sight. Now those mortgages on million dollar properties didn’t look so good when you added 4 or 5 percentage points to them. Ouch. So that’s where we now sit. Prices are coming down. Interest rates have moderated. Inventory is low. Unrest and anxiety are still high due to political factors. We have a ways to go before we can say the market has corrected completely. But, it’s coming.

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