If you are a new investor in the real estate market and want to learn about investing wisely, then you should gain knowledge about the Real Estate Market Cycles and understand them in detail. Real Estate Market Cycles give you a clear view and window inside the Real Estate World that helps you make wise decisions regarding investments. But what are real estate market cycles? 

Real estate market cycles are divided into four phases Recovery, Expansion, Hypersupply, and recession these phases come into effect every 10-18 years according to the economic conditions, government policies, and demographics of the population growth, when the factors affecting market cycles fluctuate the phases change according to these trends.

The global real estate market recently showed staggering growth, from 2019 to 2023 and is still showing more progress the sector is anticipated to grow at an annual rate of 3.41% (CAGR 2024-2028), resulting in a market volume of US$729.40tn by 2028. The growth accounts for the increasing demand for residential properties. Indicating that we are still in an era of expansion in the real estate market cycle as of 2023.

Source: Statista

Why is Important to Understand the Real Estate Market Cycle?

Real Estate market cycles help investors predict market trends which helps them in analyzing what course they want to take with their investment strategies. Real Estate market cycles educate an investor so he can know when to buy, sell, or hold the property he has invested in.

Real Estate Market cycles are the main tool and differentiator between successful and unsuccessful investors. They hold extreme importance in the property arena. The comprehension of these cycles is crucial for making a well-informed decision, they are the predictors of profitability in an investment they also help in reducing risks.

Phases of the Real Estate Market Cycle:

Each phase of the real estate market cycle brings a unique and distinct opportunity for real estate investors through which they can maximize profits and reduce risks, although investing in the real estate market is predominantly a risky business, understanding these phases of the market cycles in detail you can become a successful investor. Following are the four phases of the real estate market cycles:

• Recovery 

This phase can be identified by stagnant growth, low occupancy rates, and fewer development projects due to low demand. But this phase also brings about appealing property prices. This phase brings with it an investment opportunity the investors can benefit by buying properties for bargained prices, renovating, and then selling them in the expansion phase or when the market begins to recover. Developers can also benefit from this phase by acquiring low-priced properties for potential profits. In this phase, investors acquire properties and then wait patiently for the signs of recovery and the expansion phase to kick in so that they can make huge profits.

• Expansion

The key indicators for the expansion phase are increased demand, job growth, and rising property value. This is the perfect time for real estate investors, as they can benefit by developing properties according to market trends and then selling them at higher rates than the market value. In this phase, Investors can gain profits and maximize returns by searching and evaluating properties, focusing on the consumer’s activity for housing and rental demand, and keeping an eye on the market that is starting to gain momentum for making profits and also enjoying attractive pricing.

• Hyper Supply 

As the name indicates the hyper supply phase of the market cycle, shows an overwhelming excess and increased amount of properties in the market and very low property demand, which decreases property prices and elevates vacancy rates at this time an investor should be highly careful with his investments, it is either better to liquidate the assets if the investors do not have much cash reserves to decrease the risk or hold the properties if you have a good number of tenants and leases for rental income and wait for the recession phase. The extreme volume of expansion sets the real estate market for an impending downturn. 

Read More: How to Buy an Apartment: A Step Guide for Beginners

• Recession

The recession phase is the lowest point of the real estate market with extremely low property prices and high vacancy rates. At this time investors can benefit by buying distressed properties that are foreclosed and bank-owned at low prices, adding value to the properties by developing them, and selling them in the recovery phase, or holding the properties and achieving a potential gain in the future. 

An investor can gain so much by learning about the market cycle. As a keen observer of the market, you can capitalize on the advantages that the different stages of the market cycle bring. The market cycle helps you make informed decisions so you can easily maneuver through the riks of property investments.