Posted on: 21 July 2016
Real estate is often seen as a market that is difficult to understand for some investors. However, real estate follows a continuous cycle, repeating itself once about every eighteen years. You can predict the real estate trends as they follow these four basic phases.
In recovery, people are trying to recover what they lost in the economy's nasty downturn. Many times, this evokes the desire to hide everything in a safe place. Efforts to create lowered interest rates and new jobs are expanded. With low interest rates, people will begin investing again. Because more people are investing, companies will need to expand their businesses and hire more employees. Companies may also begin building more properties and expanding their businesses, possibly needing to purchase land.
Once the recovery stage has been successful, the expansion stage commences. People begin to once again trust in society. The typical consumer understands that the worst has been overcome. More people begin investing in land. As demand rises and supply remains stagnant, prices ascend. Profits are also rising for landowners who are selling or renting. Some companies may attempt to increase the supply by building more buildings. Contractors will buy property and begin new housing developments. Prices rise so rapidly that they are created to profit on the anticipated rise in demand. The prices rise slightly above the actual rise of demand. Renters pay a higher price, because not as many apartments or houses are available. Because wages are also rising, renters or buyers are not as resistant. The expansion stage mainly consists of supply trying to catch up with demand.
The problems begin when all the new properties built cannot be sold. Finally, there is enough of the product, and people are not going to buy more at the accelerated price. The rises are not as rapid. While they are still rising, the rate is much slower. Contractors may see the signs of trouble and stop building as they know any new units will not be able to be sold for the price they are expecting. The extent of hyper supply indicates how hard the recession will hit.
In the recession stage, property values begin going downward. Because supply and price have increased so dramatically, interest rates are almost forced to increase. New projects are halted by the risen interest rates. Landowners begin losing money if they are renting a property, because the interest rates are increasing while rent remains static or even decreases. Foreclosures and vacancies pepper the economy, leaving some investors to pick up the pieces. Many scare and try to sell their property quickly. Others follow suit, causing property to drop in value.
Evaluating where our economy is in the cycle can help you know approximately how many more years you can choose to invest. You can then sell your investments before prices have dropped.Share