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Category: Finance and Credit Current Grade: A Total Views: 130 Member Comments: 3 |
Posted on: 08/10/2008 Posted by: Jeff_Tumbarello Blog Points: 4457 View all blogs >> |
A Basic Understanding of Real Estate Cycles
I am sharing my own research which, I use for my own selfish reasons
I do not hold my self out as an expert. I am just a Real Estate guy, trying to feed his children!
In support of the statement above, I will readily change any and all beliefs, I have, when presented with facts, that would prompt me!
Civilization rests on change. This change is cyclical in origin. A rhythmic series of extreme changes constitutes a cycle. When a cycle has completed, another cycle is started. The rhythm of the new cycle will be the same as that of the previous cycle. Although the extent or duration may vary
You have the…
— Seller’s Boom
— Then the Buyer’s Boom
Busts do not follow Booms
Booms follow Busts
The Buyers Side
This is driven in the beginning by fear.
The beginning of the buyer’s side will be quite hazy, to all involved
As sales volume mounts and sales prices erode, it turns to despair, then to capitulation on the seller’s side
On the sellers side
The primary driver is greed and optimism
This is an easy market
This side always has a sharp quick upward value trend
This will eclipse the previous value trend, as a sum
If you have a ready supply of cheap money
A “Mania “may form.
What is a Mania?
An excessive or unreasonable enthusiasm
Historical Examples
— Mississippi Company, in the 1700’s
— The South Sea Company, 1700’s
— Wall Street Crash of 1929
— Florida land boom of the 1920s
— Japanese asset price bubble
— The Dutch Tulip Mania’s
You have to understand that sales volume on the sellers side drives prices up once Inventory is eroding
On the buyers side it drives them down.
The Market is a pendulum that forever swings between unsustainable optimism
Which makes Real estate more expensive
And Unjustified Pessimism
Which causes Real Estate to be Cheaper
The Intelligent Investor is a Realist. Who buys from Pessimists and sells to optimists
Boom times are a time for Courage
Bust Times are a time for Discipline
By doing this you will not be swayed by the swings in the Market
In the End….
How you behave is much more important than how the Markets Behave
Vieving 1 - 3 out of 3 comments
Posted By: dwsproperties on 08/11/2008
Sorry I ment to say Jeff not John. Edit function seems to be down also.
Posted By: dwsproperties on 08/11/2008
Very interesting post John. To me it seemes like when money is loose as it was a few years ago prices are driven way up and the barriers to entry for new investors is so low that supply dwindles which drives prices up further. I wonder if this current crisis in real estate is a true bust or more of a market correction forcing prices back down to a realistic level. Problem now is supply is up and prices are down, but barriers are back in place because many lenders have dropped a lot of products. Any predictions on when we will see equilibrium again?
Posted By: RealEstateInvestor on 08/11/2008
Jeff, this blog reminded me of my economics class a long while back. I like the way you wrote it. Good fundamental knowledge for everyone to know and remember.
Best of success,
Joel
Best of success,
Joel
