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And What Exactly Is A Normal Market?

Like many others, I am guilty of using phrases like “the market is returning to more normal levels, to historic norms, etc. After reading this press release from the NAR, I promise to cut back on the use of “normal.”

Apparently the NAR and many others use the same language as I did. The recent press release for NAR Housing Market to “Normalize” in 2006 [1] provides some standard market descriptions.

WASHINGTON (January 10, 2006) – The key word for the housing market in 2006 is balance, with a return to a more normal rate of price growth, according to the National Association of Realtors®.

David Lereah, NAR’s chief economist, said current trends in the housing sector are healthy. “We don’t need to break a record every year for the housing market to be good – in fact, cooling sales are necessary for the long-term health of this vital sector,” Lereah said. “A modest slowdown in home sales, coupled with improvements in housing inventory, means the market is in the process of normalization. That will help to bring balance between home buyers and sellers, yet sales will remain historically strong.”

But lately I have been thinking…what is normal, let alone historically strong?

I am now of the opinion that “normal” does not exist. Its obsolete, kaput. Lately normal seems more like double digit appreciation.

We are leaving normal right now.

Here are some typical uses of “normalized” [Google] [2]:

Hovnanian Sees ‘Normalized’ Market [The Street] [3]
Housing outlook remains healthy: Analysts say market to normalize in 2006 [IB Las Vegas] [4]
Economic Growth To Slow in Region [Washington Post] [5]

I think what the users of the term really mean is to reassure buyers that the market is still favorable to get into. Its hard to articulate this into one one sentence so the connotation of normal implies balance, less volatility and less risk than seen in a prior period.