The problem with capitalist markets is capitalism, not supply vs demand. When greed via renting, airbnb, and vacation homes, all which do not reflect actual value, artificially inflates house prices for those living in a home they want to own, it's the entire system that is corrupt. It is not something that merely corrects with a small, spread over time change in demand.

What will happen instead, is the construction market will shrink while realestate prices stay the same or even increase without a constant supply of new homes. Why? Because the construction market is driven by those same rich assholes that build up whole neighborhoods on the cheap who drive construction demand. Construction will slow because those rich assholes driving the market will reduce or halt construction projects to protect their existing investment value.

Poor people are now too poor to replace the mega-rich when the rich get scared of market conditions and stop investing, which directly harms all of the "features" of a free market.

Capitalism has made sure that the market only works for the rich, and the rich are too stupid and greedy (basically by definition) to handle a massive market that only their fickle, child-like emotions control.