Hi BP!
We all know this is a sellers market for the most part and there has been a lot of talk about where we are as it relates to RE. Im curious about your feedback based on the article by Teo.
According to this article (https://www.extension.harvard.edu/inside-extension...) written by Teo Nicholais, we know the real estate market goes through circles (in phases):
Phase 1 - RECOVERY: We know the characteristics of a recession: high unemployment; decreased consumption; and decreased company investment in buildings, factories, and machines. The price of land, essential for economic activity, is at its lowest point in the cycle.
As population increases so does the demand for goods and services. This expansion is typically hastened by government intervention in the form of lowered interest rates (the key ingredient for investment).
Phase 2 - EXPANSION: The transition from recovery to expansion occurs when companies and individuals have bought up or rented most of the available buildings. Occupancy begins to exceed the long-term average. As unoccupied buildings become scarce, landowners raise rents. Since most real estate expenses are fixed, increased revenues translate almost dollar-for-dollar into increased profits. Increased profits attract new development of vacant land or redevelopment of existing properties.
Phase 3 - HYPER SUPPLY: As long as the current occupancy rate exceeds the long-term average, there will be upward pressure on rents. As long as there is upward pressure on rents, new construction is financially feasible. This is the case for both the expansion and hyper-supply phases.
The First Indicator of Trouble
The delineation point between expansion and market hyper supply is marked by the first indicator of trouble in the real estate cycle: an increase in unsold inventory/vacancy.
Phase 4 - RECESSION: The transition from hyper supply to recession is marked by the second indicator of trouble in the cycle: occupancy falls below the long-term average.
The Second Indicator of Trouble
New construction stops, but projects started in the hyper-supply phase continue to be delivered. The addition of surplus inventory leads to lower occupancy and lower rents, which significantly reduces revenue for landowners.
Question:
What phase do you think your market or the general market is as a whole and what are you doing about this?
How is this affecting what you buy into, how you buy, strategies to prepare for whatever comes?
