The Real Estate Cycle: Understanding the Four Phases
Understanding the cycle of real estate I think is incredibly important for anyone who is looking to buy or currently owns to understand. After being in this industry for nearly twenty years and experiencing the ebbs and flows of the interest I find it important to comprehend the cycle for the sake of tact and being mindful of those particular seasons.
Major shifts within the market generally are demanding upon things like demand, which we’re seeing now. This large migration from major metropolitan areas with the hope to purchase a home for a lesser price and larger living space seems to be the ongoing trend due to the ability to develop and use technology while working from home. This is the cycle we are in now however it’s likely to change or slow once rates go up as it has in the past.
Most tend to forget 2018 when rates jumped to 4.5-5.0% on average, and caused home values to be corrected and receive reductions. This was due to a slight incremental change of affordability as well as the attractiveness of the lower rates offered earlier that very year. That of course corrected again, in 2019 with the changes made within the US Economy with the abolishment of NAFTA and new trade tariffs. Once that began, buyers flocked back into the market with the attractive rates that were gone for a short season.
Historically, real estate has done incredibly well throughout recession due to the lower rates that are generally offered throughout the recession. What’s important to note is the seasons of recovery, expansion, hyper supply, and recession.
Recovery tends to take place during the tail end of the recession, expansion thereafter, awarding sellers with the largest profit margin due to demand for housing. Hyper supply tends to show the maximized amount for the home in my opinion, awarding a seller with an even greater amount than what was seen during the expansion period.
The recession period then is the reset, which is healthy for over appreciation as a correction generally does take place and is normal for the market to maintain its overall health.
I have personally always thought that buying when others are not, or being aware of the market and its timing with a solid pulse is likely the best time to buy. This is due to the lack of competition as often competition and back and forth between buyer(s) and seller tend to provide a bit of hysteria and emotion, often moving the sale price of the home that much higher.
It’s also important to notate that real estate never appreciates in a straight line, corrections are necessary and even in the short term, a slight loss can often be overshadowed by appreciation thereafter.