THE REAL ESTATE CYCLE

HOW'S THE MARKET?  Where are we in the infamous real estate cycle?  What's happening out there these days?  What is the market doing?  All questions I'm asked on a daily basis...

To analyze a residential real estate market you need to know if the number of sales are increasing month to month, the number of days it takes a property to sell, and if multiple offers are becoming common.  Are there new builds starting?  What is happening in the construction industry.  

We are near the bottom of the cycle;  

During this stage of the cycle the public perecption of the economic outlook is negative.  CHECK                       *Many home buyers are still leary of what the future holds.  The real estate cycle is predicatable, it's duration is not.  

Unemployment rates are high and the banks lending criteria becomes more stringent.  CHECK                             *The maximum amortization dropped from 30 years to 25 years and the maximum you can borrow went from 85% to 80% of it's value.

Prices are on the decline.   CHECK                                                                                                                                       *Many home owners/sellers have experienced real estate values decrease to such an extent that a significant portion of the population has negative equity in their real estate (that is, when the owner owes more than the current value of the real estate.) 

You never quite know where bottom is until you start seeing prices increase again and vacancy rates decrease.

Foreclosures are more frequent and econnomic pessimism prevails as demand continues to be slow.  CHECK  *Currently we have about 12 months supply of inventory.  A balanced market is around 4-6 months supply.  More than that, you have a buyers market...less than that you have a sellers market. 

New construction during this time drops, however new builds already underway still continue.   CHECK              *New construction is down this July with 81 housing starts compared to July 2011 at 173 housing starts.

 

The next phase to look for is the "Up Market";  During this cycle house prices have bottomed out and are now stabalizing; demand for new inventory is still slow.  New construction is almost at a standstill, as this cycle continues and demand becomes more evident, new construction begins as does pre construction speculation.  In an up market prices will begin to increase based on local economy and employment oppotunities.  With less property available, there are less listings, and those houses are on the market for less and less days.  Multiple offers on properties become more common, driving prices higher.

Top of the cycle or market; This can be triggered by new employment opportunities, an enticing lifestyle or a retirement destination; all will create a high demand for new inventory which in turn drives housing prices up in any local market.  When you start to see lower Inventory levels and demand for property increase, you are witnessing a "boom."  People are generally optimistic.  Vacancy rates are lower and there will be less "For Rent" signs posted around town.

A down market; This happens after the top of a cycle. When new construction exceeds the demand and prices reach a high.   Once this happens prices begin levelling off, demand slows down, and the public becomes uncertain.  When the housing market has too much inventory sales decrease, which cause the listing inventory to increase as well as causes the average days on market of each property to increase then causes prices to slowly drop.  Vacancy rates begin increasing.

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Aaron Moss

Aaron Moss

REALTORĀ®
CENTURY 21 Assurance Realty Ltd.
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