The Real Estate market cycle(s)

[Micheal Waldrup]

Newbie here. In doing some of the reading here on the site, I ran across this graphic. http://www.biggerpockets.com/rei/wp-content/uploads/2012/12/Real-Estate-Cycle1.png

I realize that there a multiple versions of this cycle running at all times, where the local market may be at a different place in the cycle than the macro cycle. By macro, here I mean national (U.S.) market.

If you had to place the country as a whole into one of the spots on this diagram, which would you say we're in now? Does that choice differ from where you'd say your local market is? I'm trying to get a feel for recognizing this in both a micro and macro scale. I'd love to hear as many opinions on this as I can.

[Scott E.]

GREAT topic. My opinion is that we are between the climb and the peak. Especially in my area, I don't see prices rising much more, except for in niche neighborhoods that are currently being heavily developed. I also don't believe that we're near another tipping point either though. I expect prices to level out (or "peak") and remain there for some time, with minimal but steady appreciation.

Many people likely disagree with me and would suggest that we're in bubble territory again. I too am interested in following the responses here!

[Patrick Parry]

I agree with @Scott Swink. Taking the US market as a whole is Macro Economics and that really only has relevance with politicians, school and discussion like this one.

Coming from the Orange County area of California we saw a huge appreciation form September 2012 to September 2013. About 30%. Staggering. It has gone relatively flat since with some small exceptions. The usual market time has tripled since a year ago hovering at about 2.5 months. I hear people saying that prices are dropping and I explain prices are not dropping they have stabilized. Sellers were over zealous thinking prices would continue to rise so they would price their home 5% to 10% higher than the comps. So homes sit as the sellers realize if they want to sell they need to bring the price down to match market. Buyers are no longer willing to chase and are willing to wait for a correctly priced home. Now the market is primarily equity sellers that are contingent on finding a replacement home and smaller scale investment companies or individuals

When I listen to some investor radio shows that focus on the more stable markets it seems they are about 1 year behind what OC experienced. Extremely low inventories and multiple bids on homes. We are near a point where most of the large investors are leaving or are gone.

Many economist have predicted about a 5% nationwide appreciation, and also say that this could be the first time the Real Estate peak is lower then the previous peak. (I know in San Francisco they are already above the last peak in 2006. So there is an exception) The buying pool will not be ever expanding this time. John Doe the bartender qualifying for a 500k home purchase with a 110% LTV to wrap in closing cost and maybe a small kitchen rehab.

So in short I think the bubble markets in general are becoming relatively flat with the more stable markets continuing a generous appreciation. There is no such thing as a United States Real Estate Market. There is about 400 distinct in diverse real estate markets in the US. So for Orange County, CA we are relatively flat. Memphis Tennessee will be seeing generous amounts of appreciation.(Generous for Tennessee at least)

[Ken A.]

Originally posted by @Micheal Waldrup:

Newbie here. In doing some of the reading here on the site, I ran across this graphic. http://www.biggerpockets.com/rei/wp-content/uploads/2012/12/Real-Estate-Cycle1.png

I realize that there a multiple versions of this cycle running at all times, where the local market may be at a different place in the cycle than the macro cycle. By macro, here I mean national (U.S.) market.

If you had to place the country as a whole into one of the spots on this diagram, which would you say we're in now? Does that choice differ from where you'd say your local market is? I'm trying to get a feel for recognizing this in both a micro and macro scale. I'd love to hear as many opinions on this as I can.

BUY BUY BUY.

There are literally TRILLIONS of cash dollars laying around in the BIG BANKS, businesses, etc.
The inevitable WALL STREET GREED will be back and “in general” the Real Estate “market” will move much, much, higher.
Classic supply and demand. TOO much cash, chasing too few goods (yield).

Once Wall Street finds a way to massively “package” Investor loans, landlord loans, single family owner occupied loans, etc. ONCE AGAIN we will keep going up.
The Real Estate “Market” will rise till 2022-2024 or so, THEN SELL ALL…

[Marlon Wilson]

Hi @Micheal Waldrup!

Welcome to biggerpockets! Wishing you success and Keep your business growing! All the best!

[Ken A.]

Everyone will be shocked at the much higher prices by 2022-2024. Gains will be higher in the better areas. What can actually drag the “gains” are the stagnant areas that will never go up. Don’t invest there. The Biggest points for MUCH higher prices (since 2012) are

1. Too much demand chasing too little “retail” ready supply (Hello Economics 101). 2. Interest rates around 4%. Are you kidding me – Have you looked at the last 50-60 years-that is way too low and makes it much more affordable. 3. GREED – This will push Better Real Estate much higher – IT NEVER FAILS. There is way way way too much CASH on the sidelines – THEY ALWAYS chase higher yields.

I don’t know what #3 above will exactly look like. It could be Crazy Investor Loans – giving loans on investment Real Estate packaged by Wall Street (think about the Stupid Loans they gave to Home Owners – So why not Stupid Loans to Investors eventually – just a thought.

Watch how the FED always mentions Housing Prices, etc. The Gov’t will probably want to find a way to get banks, etc. to make loans. The Government actually LOVES INFLATION. Don’t be fooled. They (gov’t) can then pay off their debt with cheaper money.

I’ll be selling pretty much everything in 2022-2024 as GREED BUBBLE inflates.

I’m still buying $30K homes with $700-$800 rents. That’s my niche. These homes used to sell for $100K+ during bubble. History may not repeat, but it will probably Rhyme.

[Peter John K]

mhmm very interesting i can not speak for the country as a whole but i know that the other day i saw a report on cbbc about warning signs of another collapse in housing because miami phoenix and riverside ca are all very hot now with high prices etc... they also said houston and denver are also high but they are explainably high because of recent local growths in the economies based on small business growth etc.... the warning factor was that it was what happened before the last collapse phoenix miami and riverside were all hit the hardest during the collapse because they had an unnecessary inflation in home values that wasn't backed up by any actually growth spurts in the economy...

now i know i may sound like a fool regurgitating cnbc but i watch every day that the NYSE is open for business and a lot of the things they say are BS but than again a lot of it is often pretty acurate and yea if i could go back to when i first moved to tucson (2009ish i think) i would have bought a few 15k houses on the south side because now there all going for 90k move in ready or even 35-40k still needing a bunch of work and people are buying them... And one thing i do know in places like phoenix and tucson the wages are not growing with the housing prices so thats what is warning me to stay away fro those markets... I think a majority of the working class makes around minimum wage in AZ so yea 4 or 5 years ago great time today i don't know and I'm sure it may be a sign to the macro scale swell or not...

[Laniece Miller]

Hey thanks for asking about this.  As another newbie, the talk of a new housing bubble is making me wonder.

[Gene Hacker]

Nationwide I think we are in "the climb".

Some areas are likely near the peak and others are near the bottom and have great potential.   

Policy is going to be a huge factor.  If lending standards loosen prices could go up considerably.  If interest rates rise and lending stays tight, then we could move to a peak without increased prices.  

All that said, tracking and trying to predict the national market is not very important to me.

I do spend considerable time/effort timing the markets I invest in.  If you live in a historically volatile area, timing can make or break you regardless of all your other choices.  In 2005 I saw people make terrible choices and made great profits.  And in 2007 to 2009 I saw really bright investors loose everything.  

[Fred Conway]

I think we're in between the climb and peak, prices are pretty stable and will appreciate slowly. With that being said, i think there's an X factor that may or may not have a huge impact on the housing market and that's the stock market. The stock market is insanely high and volatile. If the stock market crashes, i think 1 of 2 things could happen. First is we have a case of 2008 all over again, minus the terrible loans, so people are looking to get out of their homes because they can no longer afford them. The other is people want to  hold on to their homes after losing much of the value of their 401ks. This could also lead to people looking to get as much money for their house as they can, sell and downsize. Again, i don't have any facts to back up the housing market, just a guess, but if you look at the stock market, there will be a correction sooner rather than later.

[Bob E.]

When rates rise, prices will flatten or drop.