Real estate is a tangible asset consisting of property and the land on which it rests. Although immovable, real estate is subject to supply and demand, much like other assets. This implies that property prices, like stock and bond prices, are highly influenced by the law of supply and demand. With increased demand, prices tend to rise; with more supply, prices tend to decline.
During the decline phase, the real estate business is once again confronted with the challenges of having an excessive inventory while also seeing a fall in demand. This ultimately results in decreased rentals and an increase in vacancies, both of which contribute to further decreases in property values. As a result of the ongoing decrease in the real estate market, there are a lot of issues regarding the impact this will have on the resale market.
Will prospective purchasers still be able to get a good deal on the sellers' properties even after they have been on the market for a number of months or even years? What about sellers who wish to close their deals as rapidly as possible? If you are not prepared to wait around for an extended period of time, how much can you expect to get for your home if you decide to sell it quickly?
When contemplating what lies ahead for the reselling market, each of these questions is critically essential. The answer depends on several factors including the state of the economy, the number of foreclosures, interest rates, and the amount of inventory available. In general, however, the longer a house has been on the market, the less likely it is that you’ll ever see a profit from its sale. If you’ve lived in your home long enough, chances are you’ll never recoup what you paid for it.
Phases Of Real Estate Market
1. Recovery:
Although the recovery phase is frequently listed as the first phase, the real estate cycle is circular, which means that the recovery phase occurs after the recession phase. This is despite the fact that the recovery phase is frequently listed as the first phase. The real estate market enters the recovery phase having reached its lowest point during the recession phase (occupancy and rental rates are low, and new construction slows), and then gradually builds back up to its previous level of strength. If there is any growth at all in rental prices, it occurs at a rate that is lower than the rate of inflation. For individual homeowners or renters, the recovery phase can be difficult to differentiate from the recession phase because the market will look much the same. In order to determine when the recovery stage has begun, experts look at trends such as gradual occupancy increases or growing demand. The recovery phase is a popular time for real estate investment and speculation because prices of properties are low (especially for distressed properties that need renovations), which means the potential eventual return on investment from operation or resale is high. This makes the recovery phase an attractive time for real estate investors and speculators.
2. Expansion:
The real estate market has fully recovered from the phase of recession and is operating at a very strong level when it enters the expansion phase. When there is an expansion in the real estate market, vacancy rates are typically low, rent rates are high (and rising), property values are high, and there is typically a lot of new construction. Because demand is high during the expansion phase, it is a typical time for real estate investors to buy new rental properties or renovate old buildings. This is due to the fact that new tenants are typically not difficult to find during this phase.
3. Hyper supply:
As previously initiated building projects continue to reach their completion, the market will enter the hyper supply phase, also known as the oversupply phase. During this period, the supply will finally catch up to and exceed the high demand. Vacancies will increase, leading to a slowdown in the growth of rents. During this stage, some real estate investors will purchase properties from businesses that are anxious about the forthcoming economic downturn and want to sell their assets at a price that is more appealing to buyers. After that, these investors are going to hold off on selling until the expansion phase (often called the buy and hold approach). Investing in a tenant building that is already at capacity and has long-term leases in place is yet another typical investment option. This is due to the fact that the building will continue to bring in a stable cash flow even when the next crisis hits.
4. Recession:
During the era of the recession, supply has significantly exceeded demand, and as a result, demand has significantly decreased, which results in high vacancy rates and negative rent increases (or rent growth below the rate of inflation). During this time, there will be a significant number of opportunistic investors searching for accessible investment opportunities due to the rock-bottom pricing of properties (especially foreclosures). They will then wait until the real estate cycle completes its full rotation, the market bottom has been reached, and the market begins to rebound and finally expand before making another investment.
The number of available homes has not recovered at the same rate. However, it was still higher than what we had seen prior to the bursting of the housing bubble. This is the primary reason for the decline in home sales. It is also the reason why interest rates on mortgages are currently at such historically low levels. This also explains why prices of homes haven't dropped nearly as much as they could have in the past few years.
