Real estate cycles tend to be on the longer side — typically seven to 10 years. We experience these longer cycles because the real estate markets are never completely in balance.
A bullish cycle favors sellers, and a bearish cycle favors buyers. That’s obvious. For smaller periods of time — usually during a transition from one cycle to another — the market clearly doesn’t favor either the buyer or the seller. This type market is not always as easy to discern.
So what are these pillars? The four pillars represent the balance of the market and can be looked at as the four legs of a stool. It’s the four legs that influence the balance of the market, and which direction the market is moving and why.
I see the main pillars of real estate being the following:
Psychology: How are people feeling about things? Job security, promotions, career changes, debt levels, health insurance, college savings, retirement.
Supply and demand: How many people are looking to buy a first home, a move-up home or a vacation home, or are new to an area and need to buy a house? How many people need to sell, are downsizing, leaving an area, moving for a job, foreclosing, divorcing or cashing out?
Credit: Which banks are lending and to whom? How tight is their underwriting? How many consumers are willing to increase their leverage (debt) vs. wanting to decrease their leverage (paying off debt)?
Interest rates: What is the cost of money in today’s dollar? How much does it cost to borrow now vs. the potential cost to borrow in the future?
Of course, there are other factors, but each of these four pillars is very important. And the pillars are not always equal in “length” or strength. When one (or more) of these pillars are stronger or weaker in relation to the others, it will affect the balance, and the current and future direction of the real estate market.
Pay close attention to these four pillars, and fully understand their influence when buying or selling in the real estate market.
— Bill Masho is the broker/owner of Masho Associates. He can be reached at 805.895.4362.