Rounding the curve as the real estate cycle continues, keep your compass in hand

Let’s look at a different perspective on all this real estate doom and gloom; I would like to remind you all that everything that goes around comes around.  It’s time to start looking at what happened and why.  The question posed to every real estate agent in the country is, “Have we hit the bottom yet?”  As the great investor Warren Buffet once uttered “In the business world, the rear view mirror is always clearer than the windshield.”

The markets can take you on a wild ride if you are not prepared or properly educated on what you are doing. Before making an uncalculated risk, look at what is involved and remember that investment is a long-term strategy to wealth, not overnight riches. Don’t let greed get in the way of making common-sense decisions.

Every market has a cycle. What is the real estate cycle and how to know what is happening and when.

Step 1. Accumulation phase. 

This is the start of an adventure.  A period when investors ‘in the know’ are actively buying against the general opinion of the market, they are jumping on board with a fresh attitude and loads of anticipation and excitement. Those who weathered the last storm are tired. Articles in the media still preach that there is bad weather ahead. Prices have flattened and sellers are still jumping overboard, the educated buyers have large a inventory to choose from and they negotiate the best terms.  However the overall market seems to switch from dark and negative to neutral. 

Step 2. Markup phase.

The beginning of this phase is when the prices start to break away and begins an upward trend. Where the early majority start buying. Where articles in the media start to discuss the possibility of being ‘out of deep water’, but unemployment numbers still rise and lay-offs continue. As this phase continues, more and more investors jump on board, so as not to ‘miss the boat’. As this phase reaches its capacity, the smart investors have started to unload, and the late comers realize that they may miss their last opportunity and load up. The bubble is nearing the top and the available inventory shrinks dramatically.  The overall market seems to turn from neutral to elation.

Step 3. Distribution phase. 

A time when sellers begin to take-over and dominate the waters. This is the period where the top has been reached and the skies are bright, but a storm is looming. Prices may hold and may peak again, may drop and then peak. When this phase is over, the market has changed direction; the wind is blowing a chilly breeze. The bubble has burst. The market turns from elation to doubt and hope.

Step 4. Markdown phase.

The final phase in this cycle is pretty bad for anyone without a life-jacket. As history repeats its-self, those who didn’t get out in time, have to tighten their belts. Those who try to jump on late, realize they have made a mistake and now have to hold on. As the markdown phase continues, the inventory continues to rise and the smart investors are waiting on the shore, because they know that the bottom in imminent and the accumulation stage is next. Those buyers will get to enjoy the next markup. The market turns from hope to loss and negativity. Then the cycle begins again, see step 1.

So there it is. The Cycle. Where do you see it is now? Where do you see it going? Has the bottom hit yet? I can only tell you from where I am located and my market. Down in South west Florida, in my opinion, we are at the beginning of the accumulation phase, having been through the storm, I am now optimistic, but realistic.

Recently we have seen a huge jump in pending sales, to be exact, there are 204 properties pending in my local MLS*, In February, we saw 74 properties close and back in January; only 47 closed. 

There is a silver lining on the clouds. Learn from the mistakes of the past, but keep a close eye on the present. There will be a right time for you, in your market. Just be ready to spot it and don’t leave it too late, the next time, the ship may have sailed away for good.

*Marco Island Area MLS a member of the FAR and the NAR.

This article was published by Tegan DeClark, a full time real estate associate with Independent Brokers Realty on Marco Island. You may comment on this article or contact Tegan by sending an email to Tegan@onmarco.com or visiting her website http://www.onmarco.com

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