Knowing the real estate market cycle will keep your business ahead of the competition. Which cycle are we in? Which cycle is coming? We’re going to go over what the warning signs are and what the best steps to take for your real estate investing business are. Real estate investing cycles are exactly that, a cycle. If you’re in a market that’s experiencing some issues, don’t worry, it will turn around eventually. If you’re in a market that’s booming, you should be investing in properties that will build a safety net for your business when the cycle eventually turns.
Before we get to talking about the real estate market cycle, let’s talk about the most important part to running any kind of business: marketing. If you’re not marketing your real estate investing business then there’s no way you’re going to get leads. You’re in luck! We host a weekly webinar that goes over the best way to generate high quality leads for your real estate investing business. Our years of experience are free for you to learn, all you have to do is click that blue button below to reserve your seat. Pssst, did we mention it was free? Check it out!
4 Stages of the Real Estate Market Cycle
There are four stages in the real estate market cycle. These stages are: Recovery, Expansion, Hyper Supply, and Recession. You remember the housing market crash in 2007? That was all just part of the cycle. It was rough for a while, but it bounced back. The unfortunate part is that we’re beginning to see the early warning signs of a decline. Let’s go over what the stages of the real estate market cycle are so that you can identify the warning signs for yourself.
In the recovery stage of the real estate market cycle the market is beginning to get back on its feet. This is the “safe” stage where you’ll see lots of new real estate investors who are eager to get in while the market is good. This comes after a recession.
The beginning signs of a recovering real estate market are easy to spot. This stage doesn’t happen over night, though, it has to build. The beginning signs of the market cycle coming back to a recovery stage are:
- Lowering prices on land
- Lowering interest rates
- Decrease in vacancies (apartments, houses, office buildings, etc)
Being in the recovery stage is a great place if you’re a real estate investor, but there will start to be a lot more competition to deal with. Since the cost of buying a house is becoming cheaper across the market, there will be investors as well as casual buyers all going after the same houses as you.
The expansion stage of the real estate market cycle is typically marked when more new construction is happening. This stage tends to last for a long time and is the best for businesses and general homeowners. When new construction happens – either commercial or residential – it raises property value as well as increasing the product on the market.
When there are plenty of new builds to go around, people either upgrade or move. This is great for your real estate investing business because you have the option of new builds for your renting portfolio, or the old houses that are now being sold for relatively cheap.
An article from Harvard explains the expansion stage of the real estate market like this:
“Since most real estate expenses are fixed, increased revenues translate almost dollar-for-dollar into increased profits. Increased profits attract new development of vacant land or redevelopment of existing properties. Basic economics tells us that new supply will satisfy demand and eliminate the upward pressure on rents and land prices accordingly.”
So far, this stage of the real estate market cycle is a positive thing for everyone involved. If you’re a buyer, there are more properties being built and lowering interest rates. If you’re a seller, there are more people looking to upgrade from renting to buying, or from a smaller house into a bigger one, so there’s more turnover with your properties to sell. It’s a win-win.
This is the part of the real estate market cycle that starts the decline. Where the expansion stage saw declining vacancies and increase new construction, the hyper supply stage is still seeing that high level of new construction but with fewer and fewer people available to buy and move in. This isn’t because there are money issues with the general public.
In fact, it’s the opposite. The people who are able or interested in homeownership have already bought and moved into the houses that were available during the expansion stage. In the hyper supply stage, there are more houses available than there are people to live in them. This is the stage of the real estate market cycle that you should have a strong renting portfolio in. Remember, renting houses isn’t exclusive to tenants. If you’re in popular markets with lots of things to do you can be using your investment properties as vacation rentals as well.
Hyper supply is the first step to a decline in the real estate market cycle. The major indicator is when vacancies and unsold houses are staying on the market far longer than they normally would.
This one is the bad one. We remember the housing crisis in the early 2000’s. That was an extreme issue and less of an natural stage in the real estate market cycle. A housing market recession is marked when occupants fall below the normal long-term average in an area. Which means there are small scale recessions, like we see in cities or smaller states, as well as large scale housing recessions that span across the entire country.
The first thing to notice in a market recession is lower occupancy, more constructions coming to completion, lower rent, and higher interest rates. Unfortunately, we’re beginning to see these early warning signs with the rising mortgage interest rates we’ve been experiencing.
What to do With Your Real Estate Investing Business
Identifying the stages of the real estate market cycle is great, but if you don’t know what to do with your business then what’s the point? You need to have a game plan, not just be able to tell where the market is at. A lot of investors whose businesses made it through the housing crisis in the early 2000’s saw the warning signs and planned ahead.
Like we said before, keeping a well stocked renting portfolio is always a good safety net solution. There are always other strategies that you can use to keep your real estate investing business afloat when a recession hits. The obvious one is knowing the buyer or seller’s emotional cycle. I mean really understanding your clients.
Remember, as a real estate investor you’re always presenting yourself and your services as problem solving. When a motivated seller is getting rid of their house during a housing market recession, it’s likely because they either can’t afford the rising interest rates, or they aren’t in a financial position to let their house sit on the market for an undetermined amount of time. How can your real estate investing business help solve those problems?
A highly successful strategy that investors use is to buy the seller’s house from them and negotiate a tenant relationship with the previous owners so that they can stay in that house for a more affordable month-to-month cost while they look for a cheaper or smaller place to live. That solution helps you because you just acquired a new property for your business, and it helps them because they don’t have to worry about selling their house, spending money they don’t have on a house they can no longer afford, or potentially going homeless.
Marketing Through the Real Estate Market Cycle
Regardless of which stage of the market cycle you’re in, you need to keep your marketing strategy up to date and relevant to what clients in your area are looking for. Let’s be realistic. People are going online before they’re looking up ads in the paper or calling agencies. Which is exactly why your real estate investing business needs to be showing up when people search for things like:
- How to buy a house for cash?
- How to sell a house fast?
- Sell a house without repairs
- Find real estate wholesalers
- Local house buyers
If you’re not appearing during these micro-moment searches then you’re not getting in front of the best possible target audience. Marketing online isn’t as difficult as it seems, but you do have to be doing it the right way. Come learn how to master online lead generation with our free weekly webinars! They’re completely free to attend. What do you have to lose?
We expose all of our testing and years of monitoring what works and what doesn’t when it comes to online lead generation. Our founder, Danny Johnson, has been a real estate investor for a very long time. All of these strategies are exactly what he uses to this day to keep his leads coming. Ready to grow your business? Click on the button to reserve your seat 🙂