The world has experienced several big shocks over the past 3 years: A global pandemic, massive supply-chain disruptions, a Russia-Ukraine War, global high inflation, an energy crisis, massive government spending, equity market plunges and sharply higher interest rates…..that’s a lot of shocks to the system! Our world in real estate is probably responding mostly right now to three SIMULTANEOUS shocks:
1. Rapidly rising interest rates, rising faster than at any time in recent history. While rates are much higher now than 6 months ago, they are not much higher than when they had SLOWLY increased in 2018 to around 5%.
2. High inflation fueling rapid price escalations….and interest rate hikes.
3. Inventory Shortages causing price escalations, especially for rentals.
What happens when you are confronted with a shock (like breaking your leg, for example?):
1. You rush to a hospital in shock, seeking professional help from the most reliable sources. You are somewhat stunned.
2. You are in pain. Your life is quite different in a flash. You lose certain things you took for granted and become angry. Why me? How unfair!
3. You become practical, accepting your predicament and adjust to the new normal and focus on your path to recovery.
While I see this moment as the GREAT REBALANCING OF 2022, one of the hardest parts of this moment – and this is just a moment – is the fact that what we are experiencing right now stands in sharp contrast to the crazy-active markets we experienced in the prior 18 months. Many had become used to that with some thinking that was ‘normal’. It was not. It was a reactionary market. And it also was not an ‘easy’ market. Yes, things sold in a flash over asking, but any professional knows managing rising markets with multiple bidding is complex, ultra-stressful and draining too. Speak to any buyer’s agent!
So after the pause caused by a shock, a new normal sets in and life goes on. While some say we are not in a recession due to the phenomenally strong labor markets, two quarters of negative growth usually implies a sharp slowdown – or recession – in the economy, this time mostly fueled by high inflation.
We should, however, feel encouraged: with all the scary, feverish warnings of the ‘coming recession’, the fact that we have actually been living in a recessionary moment for the past several months – and functioning rather well – leads me to believe that we are very well equipped to weather these shocks. Are they easy? NO! Comfortable? Never! Stressful? You bet! And they don’t pass quickly either. But soon, we will look back at this moment and realize that this (inevitable) moment of rebalancing forced us all to see the bigger picture, become more creative, efficient, practical, smarter, prudent and be much better positioned than ever to soar yet again.