How to Forecast a Local Real Estate Cycle
How to Predict A Local Real Estate Cycle
Scientifically speaking, there is not an exact formula that exists to predict a national real estate market with 100% accuracy. That being said, there are many trends that can be identified within a real estate market that can help you understand the overall market conditions. Let's take a look at Charlotte NC and Lake Norman as local market examples. When you see for sale signs go up one day and disappear the next, this is a sign of a good market. Above the basic things to look for, there are other obvious trends that affect local market conditions (good or bad). Trends such as new companies arriving to an area, new roads being installed, and new housing developments being approved are all local signs that indicate a strong and growing market. These trends can be revealed by observing during your daily commute, or by engaging in conversations at a dinner party, or by reading the local news.
If you can predict a real estate cycle with reasonable accuracy, you will thrive. Predictions done on a local level are far easier to spot, so long as you know what to look for. Make sure to keep your eyes out for the top four indicators shown below:
#1. The first phase of the real estate cycle is recovery. This is the stage where the market is not decreasing in value, but rather is beginning to show signs of upward growth. Typically this is the best time to begin investing in real estate, as your asset will begin to see steady appreciation during this stage of the cycle. For example, here in Charlotte we are seeing prices begin to "ramp" very quickly from where they were priced just a two to three years ago.
#2. The second stage in the real estate cycle is expansion. During expansion, businesses have begun to grow again, hire, and expand into more areas and territories and because of this, the public's confidence in real estate rises. Expansion is the second best stage in the cycle to invest in real estate, as the market still possesses lots of upside potential. This is also a stage to be cautious in as investors and real estate speculators (those with large amounts of funds) bet on market areas which drives up real estate prices.
#3. The third phase of the real estate cycle is the hyper supply phase. The hyper supply phase is typically seen as the "golden phase" of the four market stages and can be characterized by rapid expansion and by rapid price increases. The hyper supply stage usually begins when home builders start paying more for construction, builder lots, and tracts of land than they should be paying, based on the assumption that people are willing to pay more for their new home. This eventually causes the market to peak and homes then become less affordable. Supply and demand begin to reach an equilibrium.
#4. The final stage in the cycle is the recession stage. The recession stage is the result of the bullish market in the hyper supply stage coming to an end as faulty projects and investments begin to reveal themselves. This stage is known as the "doom and gloom" times because the market falls out of control and foreclosures begin to become more and more frequent.
When familiarizing yourself with these cycles it is very important to remember that the time periods of each stage in different cycles can vary drastically, and different market factors can change the nature of a cycle.
In Charlotte NC and Lake Norman, the housing market is not in anywhere near a peak cycle, but prices are climbing rapidly and demand is growing.
If you are interested in buying or selling a home, please contact us or give us a call at 704-232-7238