The real estate cycle is made up of four economic phases. The four phases that our country’s real estate market cycles through every several years are recovery, expansion, hyper supply, and recession.
Understanding each phase of the real estate cycle can be very beneficial for investors and real estate professionals. Knowing what phase the real estate market is in and what is influencing the current phase can provide accurate predictions and help investors determine the right strategy to maximize returns. Fortunately, there are enough investment strategies to find success even when the market is at its lowest.
The Four Phases of The Real Estate Cycle Explained
The Recovery Phase
This phase occurs after the market has been through devastation and is often the slowest to progress. It takes time for markets all over the country to recover from the impacts of a recession. Investors can take advantage during this phase by taking quick action on properties below market value. Investing in a distressed property at the right time will allow you to make renovations and add value so that the property will quickly sell or be occupied by renters when the market enters the expansion phase.
The Expansion Phase
The expansion phase is a time in which confidence and advancement re-enters the economy. During this time there is an increase in demand for housing and commercial properties. Now is the time to sell or rent the undervalued properties you purchased during the recovery phase for above market value. If you’ve been keeping a close eye on market trends and current taste, now can also be a good time to develop new properties.
The Hyper Supply Phase
Due to the quick growth during the expansion phase there is an increase in demand. The excitement and imminent need for housing leads developers and investors into a frenzy causing an excess in supply. The hyper supply phase is comprised of too many properties and not enough buyers/renters. This phase is a good time to invest using the buy and hold strategy so that you have properties ready to sell when the real estate market cycle makes its way back around to the expansion phase.
The Recession Phase
The word recession doesn’t sit well with anyone, especially real estate professionals. We are all too familiar with the great financial crisis our nation experienced in the early 2000’s. While it did take time for the market to recover, we can clearly see from the most recent cycle that it does in fact recover, expand and so on. It is important to remember that opportunity still exists during the recession phase; it does not mean investors and developers have to sit this one out. There is an increase in foreclosures and finding distressed properties at a discount. These properties will bring success as they are needed once the market enters the recovery phase.
As you can see, you can successfully stay involved and actively invest in the real estate market no matter what phase the economy is in. Now that you understand the different phases of the real estate cycle you can continue to invest with confidence.