Are you interested in learning more about the real estate market and the cycles it follows? In general, the real estate cycle is considered to have four main phases which include recovery, expansion, hyper supply, and recession. Over time, there has never been a sustained expansion or hyper-supply period that did not conclude with an eventual recession then recovery period. For homebuyers and real estate investors, it’s really important to be aware of the current real estate market and understand what cycle it is presently in. Likewise, the housing market cycle is also very closely linked with the health of the general economy. However, it isn’t a given that the housing market will do well simply because the general economy is doing well or vice versa. Keep reading more below to learn about the four real estate market cycles and the best time to buy and sell property.
Real Estate Market Cycles
To start with, it’s really important for prospective home buyers and investors to understand how each real estate cycle works. It’s also important to understand each of the four different phases so you can know how to best strategize buying and selling of properties during each phase.
The real estate cycle is composed of four phases that reflect the status of commercial and residential real estate markets. The four phases are recovery, expansion, hyper supply, and recession. The origin of the term actually dates back almost a century ago when financial analysts first began to study housing trends. Today, the real estate cycle can be used by a variety of real estate professionals to help better predict the right time to buy, hold, or sell. Investors frequently use the real estate cycle as a guide, but real estate agents, buyers, renters, and sellers will find that understanding the cycles is helpful, too. .
Why Are Real Estate Cycles Important?
Secondly, if you are hoping to buy property anytime in the future, understanding the real estate cycles is really important. For example, the real estate cycle can help provide information that can help you determine the value of an investment property and the potential returns it may provide. Firstly, if you are an investor or want to sell property, you should establish whether your property is in the recovery, expansion, hyper-supply, or recession phase of the real estate cycle. By doing so, you will be able to make an educated case about the length of time the property must be held and the proper exit strategy in terms of the best time to sell. Likewise, the real estate cycle can also help predict the income and appreciation performance of a property. With this knowledge, it’s easier to best decide when to make capital improvements.
The Four Phases of the Real Estate Cycle
Next, the recovery phase of the cycle can be tricky when the effects of a recession are still being felt and the market may have a bleak outlook. Rental growth will be stagnant, and there will be very little new construction. However, recovery is a great opportunity to buy below-market value properties that will be worth more later. Next, Expansion cycle occurs when the general economy is improving with strong job growth and an increased demand for housing. The expansion phase is when many renters and homebuyers will start generating demand again. When the market is on an upswing, it’s a good time to develop or renovate properties that will sell for more than market value. However, Hypersupply will occur next when there is too much inventory on the market. Hypersupply is a great time to use the hold strategy so that you have properties available when it becomes an ideal time to sell again. Lastly, the recession phase occurs when supply exceeds demand by a wide margin, and property owners suffer from high vacancy rates. A recession is an opportunity to purchase distressed properties at big discounts.
As you can see, the real estate market ebbs and flows just as many things do in life. However, with proper planning and knowledge, the good news is that investment strategies are possible so that people can successfully invest in each of the 4 cycles. If you want to buy luxury beachfront real estate in Mexico, check out Lemuria Residences in Puerto Vallarta. It’s a brand new luxury condominium complex on Puerto Vallarta’s exclusive South Shore that has the prettiest beaches in Banderas Bay. They also have outstanding amenities and services that you can’t find anywhere else. If you want to own a dream house at the beach, contact Lemuria Residences today to learn more!