Chilali Lodge Auctions
January 18, 2011
How to And How Not to Sell Your Home: Part Three
January 19, 2011

Local Real Estate Market Cycles. What Is Really Going On?

real estate market cycles for propertyReal estate is local.  The CBS evening news isn’t going to tell you what the market is doing in Hailey, Idaho.   Individual  markets vary and they vary a lot.  So what is really happening on the little real estate island we call the Wood River Valley?  What is really going on in our hyper local real estate community?  How do we see the big picture?

Well, in order to see the local picture,  sometimes we have to look at the big picture first.  Even though real estate is local, and often hyper local,  each market will still follow a general series of market stages.  All real estate markets essentially follow the same cycle, they just do it at different times and at their own pace.    Historically, a typical real estate cycle lasts anywhere from 8 to 13 years.  High to low and back again.

So what’s the cycle?  Have a look at chart above for a visual.  But basically, the first stage starts with optimism, then excitement and euphoria at the top of the cycle.  This is the point of maximum risk and minimum opportunity.  In other words, a sellers market.

As the market heads downward we begin to feel denial, fear and outright panic.  Despondency and depression are characteristics of the bottom of the market (sound familiar, anyone?)  Maximum opportunity and minimum risk.  A buyer’s market, in other words.

Then from the depression and despondency we begin to  find a new sense of hope and ultimately a renewed sense of optimism.  Not a buyer’s or a seller’s market, but a nice balanced market.

There’s the cycle.

So where are we now?   I like to call ’em as I see ’em and considering the real estate market of the entire Wood River Valley, I believe we have passed despondency and we are phasing out of depression.  I see glimmers of hope on the horizon.  A light at the end of the tunnel.  But, I don’t anticipate a quick dash towards optimism.  Rather, I expect a slow, drawn out recovery that actually may last another 2-3 years before we actually feel truly optimistic about our real estate market again.

And in a lot of respects, this is a good thing.  Locally, we  have an excessive amount of inventory of properties  the market and much of that inventory needs to be “absorbed” before we can return to market equilibrium.  Market equilibrium, a balanced market, is a good thing that we should strive for.  Market cycles will prevent it for staying that way for too long, but we can strive for it anyway.

Are we at the bottom of the market cycle?   I can’t say for sure but if I took a pencil and started to draw a downward line on a piece of paper and asked you to tell me when we hit the bottom of the market,  you would probably tell me we were at the bottom AFTER the pencil turned upward again.  I think that is where we are.  We do  show signs of hope and recovery but I think we will still continue to “draw” along the bottom of the market for a while longer and then slowly begin a recovery process as  mentioned above.  Its’ kind of like a big frozen holiday turkey…it will take quite a while to defrost.  But it will defrost.

Having broad knowledge of real estate market cycles is no crystal ball to the future but it definitely can help us understand our local market conditions and the direction we may be heading…which is nice.

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