If you’re considering a career in the real estate industry as an agent, investor, contractor, or other professional, there are cycles and trends in the real estate market that you must learn and understand.
The real estate industry is littered with the shells of investors and business people who have lost everything due to their failure to understand the housing market cycle and how it affects the real estate market.
What Is the Real Estate Market Cycle?
The real estate or housing market cycle or housing cycle is a term that dates back almost one hundred years and consists of four phases that report on the status of commercial and residential real estate markets.
What affects the housing market? The answer is that many factors contribute to the housing market on a local and nationwide scale, but the overall economy plays a crucial part in the real estate industry. No matter what phase the housing market is in, there are strategies you can use to make the most of each phase, but it’s vital to understand each phase and how you can benefit during each phase. Companies like DealMachine offer real estate investors information, software, and other tools for successful real estate investing during any phase of the cycle.
What Are the Phases of the Real Estate Market Cycle?
The real estate market cycle includes four phases: recovery, expansion, hyper supply, and recession. Here’s a look at each phase and how it affects the real estate market.
Recovery
The recovery of the real estate cycle can be difficult to identify because many industry professionals, investors, home buyers, and sellers will be focused on the effects of a recession and have a more negative outlook.
The recovery phase is often slow, but it’s a good time to invest in below-market value properties to hold and rehabilitate until the market fully recovers and moves to the expansion phase.
Expansion
The expansion phase of the cycle occurs when the economy is moving upwards. You will see growth in the job market and increased demand for housing and commercial space during the expansion phase. When consumers feel more confident in the economy, the expansion phase of the real estate market begins to see more demand for rental units, commercial properties, and residential housing.
Hyper-supply
During the expansion phase, investors, builders, developers, and other industry professionals create a large supply of properties to meet growing demand. Buying and holding properties during the hyper-supply phase is an excellent strategy for investors if the market becomes oversaturated with properties and prices begin to fall.
Recession
Either a downturn in the economy or a hyper supply of property can lead to the recession phase of the real estate cycle. During the recession phase, there’s more supply than demand, but the recession phase offers an opportunity to purchase distressed properties, foreclosures, and properties from motivated sellers at below-market value prices.
Why is the Real Estate Market Cycle Important?
The real estate cycle provides valuable information on investment properties and gives you insight into the best strategies to employ when buying, building, or selling real estate.
The real estate cycle is a crucial part of the real estate market that anyone in the real estate industry must understand. Whether you’re an investor, agent, developer, or rental property owner, understanding the four phases of the real estate cycle will help you thrive in any economy.
