4 Phases of Real Estate Cycles
We move from phases where we are in a buyers market and move to a sellers market and back again. It depends on your location, property values within your location, inventory, etc.
GR Mueller was someone I studied early in my career as I was learning about creating wealth from real estate. I'm attaching an old presentation here as an example of his more in depth cycle work.
Understand that things have to move in waves (up, down and sideways). Sideways is essentially 'equilibrium'. You sit down to eat because you are hungry - your appetite cycle is up. You eat until you are full, maybe you pass your equilibrium and stop eating. Then a little while after dinner you move back to equilibrium and your hunger cycle starts to increase again.
Real estate is like that, and we are likely moving into Phase 3 slowly.
Phase 1 happens after a recession - you start moving slowly from a buyers market to a sellers market as they sit on prior home construction inventory as demand in increasing. As that supply gets sold new construction happens and you move into Phase 2, and sellers are still in control.
We are likely moving past that equilibrium point now. Why? The interest rate shock caught many off guard. It's a way to slow inflation, and housing is a big part of inflation. Higher rates make it harder for people to buy new houses and inventory grows.
Think about the cycle moving toward hyper-supply. People want more housing as it was cheaper than renting, and builders wanted to build more and realtors want to sell more and lenders want to lend more you get to a point of hyper-supply. That big meal (excess) can correct in time or price or both. Time means prices stay steady and inventory is sold over time (very small correction), and if prices come down the time is accelerated.
In this Phase 3 demand starts to slow and there is inventory that isn't getting sold which lowers prices and moves all that excess out of the system as the buyers start to gain control. Phase 4 moves into a stronger buyers market as prices move down into a housing recession and houses that were started still get completed adding to inventory until that inventory is worked off.
TIP - again be aware of cycles. Bases on new home inventory we are moving into a buyers market Phase 3, but a shock of lower rates could accelerate this cycle back very quickly to a high demand market where sellers are back in control.
If you want to create your own wealth in real estate, do not buy at the top, you want to buy in a buyers market, and if you sell, sell in a sellers market.