Tips for Understanding Historical Market Cycles in Real Estate

Thirty years, or even twenty years ago, you’d seldom find anyone talking about market cycles and market timing. Today, it’s a little more commonplace, but the finer points are often misunderstood. But whether you’re an investor or a real estate agent, understanding this concept can totally change how you see your marketplace.

In reality, you need all the tools you can get so you can have an educated view when it comes to buying and selling real estate. This can mean the difference in providing sound advice to a client or making the best decision concerning a property, for example. It can also mean the difference between tens of thousands or even hundreds of thousands of dollars. And as an experienced investor and agent, I want to share a few tips with you on getting a better understanding of market cycles.

The movement of the market

If you’re not familiar with market cycles yet, the basic concept is pretty straightforward. The idea is that marketplaces go through semi-regular trends over longer periods of time. For our purposes, these trends are the absorption, expansion, and decline phases. Obviously, the decline phase represents downturns and the worst time to buy. Yet, during the absorption and beginning of expansion phases, there are often a number of quality opportunities. For now, this basic overview will suffice.

Every market is different

As an investor or real estate agent, you’re likely aware that San Francisco is not the same as Southwest Florida real estate. Not only are prices different, but they may even be at different stages of a market cycle at the same time. Or, as was the case in 2008, experience a more pronounced impact during one of the phases. Once you understand this fact, you can start to see how and why real estate markets behave the way they do. You also get a picture of how different area market cycles may affect each other.

Knowing your marketplace

With that in mind, you can also see how knowing your marketplace is absolutely critical, whether you’re an investor or a real estate agent. After all, if you’re able to see the writing on the wall, as they say, as the expansion phase peaks and begins a decline, you can make more informed decisions. At the same time, if you’re experienced in one area of real estate, you may be less informed about another marketplace that’s not your own. And there’s nothing wrong with that! In fact, this forms the starting place for gathering information about the market cycles of any new city or region you want to work in.

Terry Records