If you are a real estate agent, a broker, or an owner of a real estate agency, you need to understand real estate cycles. You will be able to guess how the real estate market will perform in the future if you know these cycles. That is very important because you need to be sure that you are investing your money in the right places.
What Is a Real Estate Cycle?
A real estate cycle is a concept that describes the supply and demand in the real estate market. In real estate lingo, it involves the vacancy and the occupancy rate. It simply means if the vacancy rate in a place is high, it is profitable to build new houses and structures. Potential customers will need new locations for their residences and offices.
A Real Estate Cycle Has a Physical Side
If there is high occupancy in a place, it is not profitable to build new structures. Potential customers already live in their own houses. Businessmen already conduct their businesses in their own offices. This is only the physical side of a real estate cycle.
There Is Also the Financial Side
The other side of a real estate cycle is the financial side. It carries more weight because it affects the money side of the investment. This financial side of a real estate cycle depends on the flow of capital.
Let’s say there are many people who want to buy real estate properties. In this condition, the prices of available properties will go up. But if there are only a few customers looking for properties to buy, the prices of the properties will go down.
As you can see, the financial cycle influences the prices of real estate properties. But new construction in the area will determine the supply. The demand will increase when there are many buyers but few properties are for sale. Prices of those properties will also increase.
The Nature of Real Estate Cycles
Real estate cycles occur in a repetitive manner. They are like the weather and the seasons that have their patterns of repetition. You will be able to put your money in the right place at the right time if you are able to predict the times that real estate cycles will occur.
Real Estate Cycles Have Four Phases
There are four phases in a real estate cycle. If you know these phases, you will know when to buy or not to buy real estate properties.
1. Recovery Phase – This is when there is a slight upward movement of the occupancy rates.
2. Expansion Phase – This is the time when the upward movement continues and the trend is not slowing down.
3. Hyper Supply Phase – This is when there is oversupply and the demand slows down.
4. Recession – This is the time when the real estate market crashes. It is the inevitable result when the demand slows down.
Predicting the future of real estate markets will be easier if you know how it reacts to outside stimuli. Real estate cycles are the best tools that you can use to predict when to invest and when not to invest. You really need to understand these cycles.
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