Every Investor Should Know the Real Estate Cycle

The real estate market, similarly to the economy, goes through phases and cycles. Knowing and understanding the cycles of the market will result in better investment decisions. There are periods when properties should be bought, but there are phases when buyers should keep away. The four cycles of the real estate market are recovery, expansion, over-supply and recession.

Recovery is the first phase and marks the lowest point of the cycle. It’s a phase identified by little activity and barely any new construction. It’s also a phase when housing inventory is in abundance. All these factors are the result of recession, a cycle that will be detailed later. For investors, the recovery phase is a good time to buy properties because supply greatly outweighs demand. Correctly identifying this stage of the real estate cycle is a good prediction that the market will head upwards leading to good profits.

Expansion is the part of the cycle that follows recovery. It is identified by general optimism in the market and sometimes called a booming market. The economy at this stage also does well, and the job market is robust. It’s also a phase when new home construction increases as demand begins to exceed supply. Another indicator of an expanding market is an increase in occupancy rates of rental properties. Like the recovery phase, this is also a good time to purchase investment properties such as homes for sale manhattan beach ca, a beachfront market that fares better than most other markets regardless of the real estate phase.

Hyper Supply follows expansion and is the phase when the market starts to slow down. Despite a declining market, the construction of new homes continues. The level of construction during this cycle, however, decreases as it parallels decreasing demand. Some buyers and sellers are confused during this part of the cycle because of market activity. Some mistake it for expansion while others mistake it for the start of recession. This confusion leads to opportunities for keen investors as then can find good deals due to panic-selling.

The final phase of the real estate cycle is recession. This stage is distinguished by tremendous supply as demand for properties dwindles. Other indications are a poor economy with high unemployment rates. For patient investors, the recession phase is a great time to find great deals because the market is saturated with properties at bargain prices. The investor should, however, have the resources to hold on to the properties because the recession phase is usually long-term.

Correctly identifying the real estate market cycle can greatly benefit investors. The availability and prices of properties vary substantially from one phase of the cycle to the next. Keen investors will be able to identify the current phase and predict where the market is heading. Doing so will enable investors to purchase properties when the market is down and sell for big profits when prices have peaked. This is a strategy that all investors should use to maximize profits and minimize losses.

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