What is a Real Estate Cycle?

The difference between those that succeed and those that fail.

Over the years people have become discouraged with the ups and downs of the housing market. For some, it may seem like buying a home is forever out of reach while others are learning how to navigate the market and make a serious profit in the housing industry. The difference between those that succeed and those that fail with investing in real estate is how well they understand the real estate cycle.

A real estate cycle is a period of 12 to 15 years in the housing market where it makes a complete circle of events. For example, in 1983 a new cycle began. During this year the economy was in poor shape and many people were facing loss of jobs. Typically this phase is during the post-recession before the economy starts to improve. A few years later we began to see economic boom as small businesses began to flourish and jobs returned. This boom also helped improve the real estate market. The DOW increasing substantially and people begin to make money again; particularly those who invest in homes. When the economy is good for a few years and everyone is happily making money, banks start to loosen their lending terms and therefore lend more money than they did in the past 6 to 8 years. Because there is more money being lent, more homes are being bought and the housing market is flourishing. The cycle is then ended by a serious recession. This particular cycle ended in 1996.

Currently, we are in the middle of a real estate cycle. In 1997 the economy was in a rough shape, by 2006 banks were lending again and since 2010, the economy has been in a lull waiting to improve and be pulled out. It is predicted that by 2014 there will be drastic improvements in the economy which will once again drive up the real estate market. By analyzing the real estate cycle you can determine what is the best time to buy and sell a house and also how long you should hold onto a property. During the economic downturn it has been difficult for people to sell homes which is why many people are losing money. They invested heavily in a property with hopes to sell it but are attempting to sell in a bad economy when banks are not lending money and many people cannot afford to buy a new home.

Jeff Ingram