The Value of Real Estate Cycles: Understanding Buyer’s & Seller’s Markets

As it happens in other fields, it also happens in real estate: some real estate investors don’t monitor real estate market conditions, locally or globally, and end up losing ground where they could have won it.

Some investors make the big mistake of not continuously conducting research that can update them with information about recent economics of the local or global real estate market.

Some investors are only concerned about the money aspect of real estate; as a result, they aren’t even aware that real estate cycles exist and the tides of any real estate market can change when they least expect.

Lack of awareness about any change can lead investors to failure after investing their time and money and making so-called “juicy” or “promising” investments.

The old news (for those who know) and new news (for those who don’t know) is one and the same: the real estate market and criteria that influence people’s decisions are dynamic and do fluctuate. And their value deserves people’s attention.

Therefore, even if you’ve been successful in the past, or you plan to buy and hold real estate, you need to pay attention to/be up-to-date with the real estate cycle or market conditions.

Intelligent real estate investors always find time to monitor their markets to look for signs of real estate cycles which can open opportunities for real estate businesses.

On the other hand, lack of awareness of real estate cycles can stunt or halt the growth of a real estate business.

The fact that real estate markets are cyclical—they have cycles—is one major reason why you need to keep track of real estate market conditions and the timing of buyer’s and seller’s markets.

What is buyer’s market?

In real estate, a buyer’s market situation occurs when property owners aren’t able to sell their properties quickly because supply is higher than demand—i.e., the demand for properties is lesser than the supply.

This condition makes sellers more flexible with their prices and gives buyers an advantage over sellers. It opens great opportunities for investors to seek seller financing.

What is seller’s market?

A seller’s market situation occurs when property owners are able to sell their real estate properties quickly because the demand for them is higher than the supply.

This condition makes it possible for property sellers to receive multiple offers in a short period of time and even sell properties higher than their respective asking prices.

Real estate cycles, influenced by demand and supply

A real estate market may have either more demand, or more supply, or a comparably equal level of both. More demand for properties causes shortage of supply, increases rents, and appreciates the value of properties.

This can expand real estate businesses and lead to building of more properties. It other cases, it can even lead to overbuilding—meaning, high or excess supply of properties—and subsequent decrease in rents and property valuation when the real estate cycle changes—supply becomes higher than demand.

Some property investors believe that regardless of the economic situation or level of demand and supply, they don’t really need information concerning real estate cycles.

They believe they’ll be able to make it and expand their businesses, unhindered, because people will always search for places to buy or rent and live in.

Although this could be partially true, it is important to note that demand and supply fluctuate in different regions of the world, and the economic base of a region greatly impacts its rental rates, occupancy, and even tenant and buyer quality.

So, even if people are always going search for properties to live in, certainly, the same people would hardly ever demand for properties located in regions that are known or becoming known for issues such as fighting, wars, or being blown away by floods and earthquakes.

Various conditions can cause demand to be low or missing and create opportunities for investors to fall or rise, depending on the decisions they take.

Follow the path of knowledgeable and successful property investors who are aware that real estate has cycles and, with good timing, the real estate market can yield great dividends from wise decisions after tracking cycles and acquiring valuable information.

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