We need to accept market corrections as they are just inevitable parts of life

There is bad news for homeowners today: the value of one of the largest investment you’ve made is going down.

And there’s good news: owning a home is still the best investment you will probably ever make.

There are different forecasts on how much home prices will fall in the nearest future, and they mostly depend on the real estate type and its location.

Recently, RBC Economics released a report expecting a 12% price correction for the housing market by the next winter compared to the peak we’ve seen in February.

“In our opinion, the current downturn should be seen as a welcome cool-down after two years of madness that put a huge financial burden on many new homeowners and made homeownership even more difficult to reach,” – noted RBC Assistant Chief Economist Robert Hogue in the report.

It’s not really comforting for homeowners who are now looking at their investment shrinking from a valuation that never really was. We can see a lot of stories in the media about people selling below their arbitrary asking price and calling it a loss.

However, in many cases those valuations have doubled and tripled during the previous 10+ years beyond their real values.

That’s why it’s called a correction – we return an asset price to its real intrinsic value. According to CMHC economists, the average price of an average real estate has consistently grown by at least 5% per year during any 25-year period since the Second World War. And there’s no reason now for the future to be different.

Corrections have one thing in common: they can mess with our heads as we are scared the correction will transfer into a collapse.

In this case, a long-term perspective is the best remedy for the short-term fear.

One good example of how corrections work is the S&P 500, as this index holds a diversified cross section of stocks that reflect the broader market picture. On Thursday, the benchmark fell by about 15% this year, marking an official correction.

Nevertheless, the value of the S&P 500 rose by almost 65% during the previous 5 years.

So, it’s much easier to understand corrections when you look at long-term numbers and realize you may be losing sleep just over a short-term issue.

And, by the way, corrections work both ways. According to RBC, a housing correction provides opportunities for homebuyers – the way equity market corrections provide opportunities for investors to purchase below the real intrinsic value.