Understanding Real Estate Cycles
The dynamics of the real estate market can be hard to understand. Like all markets, real estate is unpredictable and changes in market conditions can have profound impacts on the financial situations of millions of people. This article will take a closer look at cycles in the real estate market and what they mean for your buying and selling decisions.
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Four Distinct Categories
By the definition of the word “cycle”, we can already understand a little bit about this topic. Something that is cyclical moves through various repeating steps or stages, and the pattern of that movement tends to happen over and over again. While real estate doesn’t operate as an entirely authentic cycle, in that it isn’t perfectly repeatable, there are four cycle stages that are generally identified by economists that study markets that can be identified and monitored.
- During this phase, measures of vacancy are declining and little new construction is taking place
- This part of the cycle will see vacancy still declining but new construction taking place, as well
- Here, vacancy is going up, and yet construction isn’t slowing down
- Those new construction projects arrive on the market and vacancy goes up even further
While it can be helpful to monitor market conditions to see what phase is currently taking place, it can be hard – or nearly impossible – to figure out how long one phase is going to last before another takes hold.
Countless Variables
Much of the difficulty in terms of evaluating the cycle of the real estate market comes down to how many variables influence the behavior of the market. For example, interest rates have a strong impact here, with higher rates typically keeping people away from shopping for a new house. Also, the health of the economy as a whole plays an important role, since people having well-paying jobs are more likely to be able to purchase houses and other forms of real estate – meaning prices will probably rise over time.
Finding Your Place
Monitoring the cycles of the real estate market is only helpful if you are able to use this information to your advantage in some way. Different parts of the cycle present different opportunities for those who are positioned to jump into the market at just the right time. As an example, when the market is in a recession, buyers might be able to secure a great deal on a rental property to hold for the long term. Then, the cycles come back around and rents go up in the area, that property could become far more valuable than would have been indicated by the purchase price (since it was purchased in a recession when the market was down).
Thinking about making some real estate investment purchase, or just trying to decide when the time is right to buy your own home? Smith Marketing is ready to help, so get in touch today to learn more.