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Understanding Real Estate Cycles |
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Phase 1 – Expansion
Because the previous phase of the market was characterized as a period of excessive demand, this phase is depicted by construction. In other words supply, catching up to and (in most cases) exceeding demand. Because growth places heavy demand on materials and labor, this condition is also depicted as an inflationary phase. It's good to be a seller early on in this phase of the market cycle. |
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Phase 2 - Decline
Because the previous phase of the market was characterized as a period of inflation, the market is less attractive to business looking to relocate or expand. Many jobs are lost to other domestic and foreign markets due to the high cost of living. With the job losses, and likely overbuilding, there is far more supply than demand, resulting in declining occupancy levels, rents and values. |
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Phase 3 - Absorption
Because the previous phase of the market was characterized by declining values, the market offers a lower cost of living. This with new government incentives offered to businesses (in an effort to bring back the economy) looking to relocate or expand, the economy starts adding jobs which translates to increased demand, occupancy levels, rents and values. Early on in this phase is a good time to acquire income property. | |
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