Real Estate cycles means the price and activity of real estate follow a cyclic order that means the price and activity follow the ups and downs.
Two types of real estate cycles are given below:
- Long Cycle:
Ø Whether one book at construction activity, land prices or deed recording over a long enough of period of time cyclical patterns appear to repeat them every 15 to 20 years. These are called long cycles.
Ø An excellent example shown in the figure
Ø This figure shows how land price in the
Long cycles in
Ø The first drop in prices shown took just 1 year 1818 to 1819.
Ø Then it took 17 years to reach the next peak.
Ø The next cycle took 7 years to reach bottom and then lasted 11 years on the upswing.
Ø If a person had bought in 1837, he would have experienced 6 more years of falling prices.
Ø If he kept his land in anticipation of prices returning to the 1836 level, he would have waited until 1872
- Short cycle:
Ø Whether one book at construction activity, land prices or deed recording over a long enough of period of time cyclical patterns appear to repeat them every 4 years. These are called short cycles.
Ø These cycles have been particularly apparent since the end of World War II.
Ø Few home buyers can afford to pay all cash for a place to live; their decision to buy is based on the availability of loan money and the size of the monthly payment
Ø With money available down payments shrink and interest rests drop, so that a buyer can afford to buy a more expensive home with the same down payment and monthly payment.
Causes of Real estate cycles
Followings are the causes of real estate cycles:
Ø National economic status
Ø Rate of immigration
Ø Population growth rate
Ø Rail road construction/Highway
Ø The increased use of debt financing to purchase the real estate
Ø Government encouragement of home ownership
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