Looking At Long-Term Real Estate Pricing Cycles | Worth CRE


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Looking At Long-Term Real Estate Pricing Cycles


Like any other investment, real estate prices fluctuate up and down. Newer investors are many times turned away by this natural occurrence, worried that lowering real estate prices means their investments are losing value. This is not necessarily true. Experienced real estate brokers and investors understand that real estate prices follow a repetitive pattern which means that prices, even at their lowest, will always rebound. It is this cycle and the ability for real estate to continually rebound and hold its value that makes it a good, long-term way of investing.

Real Estate’s 18-Year Cycle

Real estate property values rise and fall according to economic and other conditions. They tend to react very slowly both in losing value and gaining it. Quite a while ago, economists and investors noticed a distinct trend in real estate prices that still exists today. For more than 100 years, property prices have fluctuated in the same ways over 18-year periods of time or cycles. Called The Great 18-Year Cycle, this fluctuation is now used as a reliable predictor of how real estate pricing is likely to still change today.

What the Cycle Shows

Real estate brokers maintain that this 18-year real estate cycle is a useful tool for understanding and estimating property prices in a designated area, one that investors use to help them make wise financial choices. According to past history, the cycle starts off with steady property prices, then enters a period where demand begins to decline yet prices stay stable. When demand continues to fall, so do prices. Property owners will usually retain their value for a while, then eventually have to lower them to remain competitive.

As the market becomes saturated with lower-priced properties for sale, it has then becomes an investor’s market. Once the cycle reaches its bottom and property sales begin to pick up again, prices start to rise as property owners catch up. The pattern begins all over again once prices have risen to the point that investment becomes less lucrative, with the entire cycle taking about 18 years, as history has repeatedly shown.

Tracking Real Estate Prices Over Time

Although The Great 18-Year Cycle is not a flawless formula for determining things like property values and generated rent based on economic and market conditions, it has been reliable enough to be used as a general guide by many. The idea requires obtaining a financial real estate history for local areas in 18-year segments, then analyzing that information to find the pattern showing the rise and fall in property value and demand. Many investors use this method to determine the best time to purchase and sell properties in order to earn the most from longer-term investments. It is all based on the demand for rentals of all kinds and how that demand rises and falls within this cycle.

Real estate brokers studying these trends say that real estate markets are just beginning to rebound, with prices starting to increase again. What this means for investing purposes is that now is the time to buy, as the cycle is expected to reach its peak, then begin again, within the next 6 to 8 years. Investors interested in making the best purchases to take advantage of current market conditions should find a knowledgeable broker to work with soon!

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