San Diego and California SFH real estate prices drop a bit in July

 In this 7San Diego news article, prices finally dropped a bit, from 4 records months of highs.  Single family homes in San Diego dropped .6% in July, and in California overall, they dropped 1% last month.  Is the market just taking a breather?  Or have we topped out?  One month is not enough to be a trend, but it shows a bit of slowing in the race higher.  The San Diego median price is up 19.6% from a year ago.  Total escrow sales in California were down 1.6%, month over month, and down 2% from a year ago. 

Why didn't the real estate market crash in the 2020 "recession"?

 This is the "M2" money supply chart for the last few years.  Basically, this graph shows how much money is being created by the Federal Reserve (which is NOT part of the U.S. Government, we don't elect Fed leaders).  There's a simple rule I learned from former Fed chariman Alan Greenspan's 2007 book, The Age of Turbulence.  When a government, or in our case, central banks like The Fed, create more money, that creates inflation.  More money in the system means the value of each dollar (or other currency) goes down.  So prices go up.  There's a lag time, usually 12-18 months, that it takes for this to happen, because the money is given to banks and major players, and then takes a while to begin circulating through the real, everyday world.  How fast money moves around is called the "velocity" of money.  

But the basic rule is, When they make more new money, prices start going up, 12 to 18 months later.   That's inflation.  

Look at the right side of that chart, that's the biggest surge in newly created money in U.S. history.  That money has gone into stocks, real estate, and other investments, keeping those markets from correcting... crashing, like they would in a "normal" recession.  Instead, the markets surged upward.  

The Fed has done everything it can to appease Wall Street and major corporations.  That bought us time in 2020.  But it has also completely warped the financial markets, and driven prices of assets like stocks and real estate, to absurd levels.  This can't go on forever, which is why stocks are largely flat for about three months now, and real estate prices appear to be topping out.  

When the crash, which is inevitable, does come, it will be bigger and more intense, and The Fed doesn't have much it can do now.  The Fed has two basic tools to affect the economy, 1) Create new money, and 2) Lower interest rates.  It has done both of those, more than ever in U.S. history, in the last two years.  Those things are losing their effect.  So we will have another major correction, a crash in stocks and real estate and other investments, before too long.  It's inevitable.  And The Fed is stuck, whatever it does then, will add to the negative effects.

 But all the new money will also create rising prices on most other things.  So it's going to be a weird, high inflation scenario, with "assets" losing value, for a while.  When things do turn South, it will have a big effect on real estate, and other investments.  Things are so out of whack economically, it's hard to tell how things will ultimately play out.  

So on the everyday level, the real estate market is getting back to something more close to "normal."  But we have this Big Picture money supply increase that delayed the real estate correction, and prices will drop at some time.  That new money bought us time to deal with the pandemic crisis.  But it just delayed the real estate price correction that usually happens a while after a recession starts.  And technically it was a "depression" in 2020, not a recession, but that's a whole different issue.