The Real Estate Market Cycles Explained
The real estate market has its ebbs and flows. Home prices may reflect the overall state of the nation’s economy and in many areas, reflect the job growth and salary expectations. Understanding the different phases of the housing market and how it ebbs and flows can help you as both a buyer and a seller. As an investor, you can learn how the market changes to help you find the best investment properties. As a homeowner, it can help you determine the best time to sell your house.
The phases of real estate are cyclical. The Recovery phase starts at the end of the Recession phase, and the market continues in order through Expansion and, at the peak, Hyper Supply. Choosing the right time to list your house or buy a new one can make a difference in the tens of thousands of dollars. We’ll help you better understand real estate market cycles.
Recovery
Recovery comes at the end of a recession period. It’s marked by little to no new construction underway and a rental rate that’s either flat or growing very slowly. The rental rates and housing prices will be increasing below the rate of inflation as well. Determining the beginning of the recovery phase may be difficult, as the housing market will still feel like it’s in a recession. However, the market is slowly on an upward trend.
Recovery is marked by little to no new construction underway and a rental rate that’s either flat or growing very slowly. However, the market is slowly on an upward trend.
Commercial buildings and suburban homes both will have high vacancies during this time, and home sales are slow. Unemployment during the recovery phase is still high, which means that demand for housing is much lower. Some indications that the market is starting the recovery phase are an uptick in the number of property viewings. Properties that are in need of repairs, like fixer-uppers, may generate a lot of interest, and a savvy investor can pick up properties to develop relatively inexpensive.
Expansion
The expansion period shows housing and commercial real estate markets moving from recovery to steady growth. For residential rentals, tenant demand is increasing and new builds are more prolific. Real estate developers are building new commercial properties, too, and the “fixer-upper” properties are increasing in value.
The real estate market moves from recovery to steady growth. Rental demand will increase and occupancy increases. New builds are more prolific.
The economy and job market in the expansion phase steadily increases during the expansion phase. Rental demand will increase and occupancy increases. Demand increases and those investors that chose to purchase residential income properties can expect to see rental rates increase steadily. New subdivisions may be planned during this time and construction of new single-family homes will begin to increase, too.
Hyper Supply
Hyper supply refers to a market that’s saturated, both for residential and commercial tenants. The construction of new homes may begin outpacing the demands, and landlords with commercial properties may have difficulty finding tenants. While the market was booming during the expansion period, it’s now full.
The result of oversupply is increasing vacancies and declining rents… prices begin to fall from their peak.
The result of oversupply is increasing vacancies and declining rents. Tenants and buyers have multiple options, and prices begin to fall from their peak. For investors during this phase, it makes sense to find steady, long-term tenants and offer longer leases to those who have a solid rental history.
Sellers may start to panic, trying to discharge some of their properties in advance of a coming recession. Some high-value properties may be available to purchase for a bargain.
Recession
A recession is the bottom of the market. With an oversupply of homes, rental units, and office space, keeping them filled is a challenge. People enter into foreclosure or file bankruptcy, which depresses property prices and tenancy contracts. Vacancies may happen for months at a time.
A recession is the bottom of the market. With an oversupply of homes, rental units, and office space, keeping them filled is a challenge.
The housing market may reflect the general unemployment numbers in the economy, as well as the rate of inflation. Interest rates drop to correct the issues of vacancies. Eventually, as the economy recovers, the cycle transitions from recession to recovery.
Buying real estate during a recession period means that you, as the investor, will have to be patient, waiting for the market to stabilize before you can find steady occupancy. While bank-owned properties and empty lots or partially developed real estate may be available cheaply, the slow demand means that you may have to wait months or years before seeing a return on your investment.
Different Markets Can Be in Different Phases of the Cycle
Despite the way the real estate market is portrayed in the media, there’s no one “U.S. Housing Market.” Instead, different metro areas experience their own cycles, either in a growing market, such as Dallas, or one that’s reached the Hyper Supply point, such as San Francisco. Understanding how local economies affect real estate in their communities can help you, as an investor, determine where to by as well as what to buy.
Selling Your Home to an Investor
If you’ve found yourself “underwater” paying for your home, or if you’ve listed it with no results, you have other choices. Selling your house to a cash buyer is a viable option for many people. Those that may have a large number of bills or debt may want the money to pay these off or those who are divorcing may not wish to keep the family home. Other people may inherit a house that they don’t want to live in – or there may be multiple heirs each entitled to a share of the home’s value.
Whatever your reasons, cash buyers offer fair prices and fast closing. These investors use cash to buy homes, which drastically reduces the waiting time for a mortgage to be approved. Using special formulas, they’ll make you an offer for your house, sometimes sight-unseen and in an “as is” condition. This means no money out of pocket for repairs or upgrades on your part! Some transactions can happen in as little as two weeks!