The real estate market cycle is a series of phases that the real estate market goes through at the national and local levels. Real estate experts break up the cycle into four categories.
The recovery phase begins once the recession stabilizes and begins to wane. Many people struggle to identify the recovery phase since the recession is rarely constant. Expect to see small economic improvements during the recession that do not explicitly signal the recession's end.
In the recovery phase, the market starts to regain its attractiveness after the recession's dismal performance. The number of properties in the market, prices, and sales volume will slightly increase. Confident investors will start developing properties for sale, while others might still be cautious.
As the name suggests, the expansion phase signifies that the market is expanding. A real estate market in an area enters this phase when the demand for properties in the area increases. The increased demand spurs positivity in real estate developers who begin churning out properties for sale.
The expansion phase signals a good economy because the demand for properties is directly proportional to the economy's strength. Thus, other indicators of the expansion phase include low unemployment, shortened days on the market for properties for sale, and rising property prices.
The activities that characterize the expansion phase continue until homes for sale saturate the market, and the hyper-supply phase begins. In this phase, the number of homes for sale exceeds the demand. The buyers' market lowers real estate prices, and homes for sale increasingly spend more time on the market.
The hyper-supply phase has its pros and cons, just like other phases. For example, developers struggle to sell homes, but financially strong buyers may snag affordable properties. However, many people also don't have the money to buy properties due to the weakening economy.
The hyper-supply phase might last a long time, but it eventually leads to a recession. In this phase, the number of properties in the market far outstrips demand, the economy is on a downward trend, and many homes overstay in the market.
The recession phase is usually bad for most people, including those who aren’t buying or selling homes. For example, many homeowners struggle to keep up with their mortgage payments and eventually go through foreclosure. However, those with money may find distressed properties at a bargain.
Understanding the real estate market cycle is crucial to all players in the real estate industry. For example, sellers can use the cycle to identify when to put their homes on the market. Buyers can know whether to make offers or wait a bit for prices to stabilize.
To learn more, contact a real estate agency in your area.