When to Buy and When to Sell – Real Estate Cycles

In order to be successful in real estate investing, you should not only pick the right properties, but also pick the right timing. You will need to know when the market is improving to be able to “predict” the prices in the near future. Economists and real estate professionals know well that property markets move in cycles, which are essential for one’s success or failure. So, how can we know when to buy and when to sell real estate?

Normally real estate prices rise, but there are exceptions – the housing market can crash. While for many of us, the 2007 mortgage meltdown and the 2008 economic crisis were very surprising, smart investors and real estate professionals had actually predicted it two decades ago. How? It’s a very complex science, but the fundamental idea is that the industry follows a predictable cycle – boom, slump and recovery. Some academics will argue that there are phases of the cycle – recover, expansion, hypersupply, and recession. But terminology isn’t important here. What really matters is whether we can identify the improving market or the dipping one.

Whether you are buying or selling your own home, or you are investing your money for safe and steady income flow, you need to know when to do this. Generally, a good time for selling is when you see the market improving and you are certain the price of the property won’t go higher. Of course, you should also avoid buying in a bubble market, when properties are over-priced. There are several ways to determine the real value of a real estate – the price to rent ratio, the relative prices, the affordability aspect, and the price-to-replacement cost, where prices of new buildings will act as a ceiling on the market. However, it’s not an exact science with many fluctuations across local markets around the world. But how to see if the market improves? Once you spot improvement, you need to prepare for selling in the near future.

There are 10 signs showing improvement in housing market:

1. Recovery in the job market – when employment rate drops, this means the property market goes up.
2. Less homes for sale – the oversupply pushes down sales prices, so when “For Sale” signs start vanishing, this means demand is growing. This is the time when prices start to go up.
3. When the median prices stop falling – compare this year’s median sales prices to those over the previous year. Steady increases indicate improvement.
4. Starter homes sell faster.
5. Fewer distress sales – short sales and foreclosures are a typical sight during a depressed market. Once they are gone, you can start preparing for selling in the coming year (or years).
6. New businesses open – when you see new stores in the neighborhood and closed businesses reopen, then you are seeing a recovery.
7. New job positions in real estate agencies – does this really need an explanation?
8. There are more buyers than several months ago.
9. Interest rates start becoming more attractive.
10. Sellers look for bigger, move-up homes.

According to experts who are analyzing the current market, the next real estate boom will be around 2021-2024 and will continue for 9 to 12 years.