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Investing in the real estate industry is a decision that comes with a lot of potential for benefits as well as the likelihood for losses if you toss the coin recklessly. In many cases, people emerge with success but the few that fail are the ones you need to focus on so you will not make the same mistakes. Predicting cycles in the real estate industry is one of the easiest ways you could obtain useful information that will help you invest based on facts and with the assurance that you will get your returns within the right duration.

What are cycles in real estate?

Before working on the specifics, it’s vital to understand what cycles in real estate are. Basically, real estate cycles are phrases that signify changes in the market. The market generally rotates through four cycles and this is repeated through a predictable pattern. The cycles, in this case, include recovery, expansion, hyper supply and recession. To help you understand each better, here is an overview of the different real estate cycles and what they mean to you as an investor.

1. Recovery

Let’s pick an arbitrary starting point and assume that the market just recovered from a downward trend. The phase into which the market moves from a downturn to regain stability is what is referred to as recovery in real estate. This simply means the market is not in a ‘free fall’ any longer and has begun taking an upward trend. If you would like to make profits shortly after, this is an opportune moment to buy real estate.

Some of the indicators of this phase include widespread yet stabilized unemployment, many foreclosures and general fear in the population. At this phase, many people will be swearing that they would never waste their money in real estate, but you should not go with their ideas because they are informed by the frustrations that come with the downward trend of the market.

2. Expansion

The second phase is an expansion, and in this one confidence in the real estate market starts to return. It basically represents calm and the beginning of prosperity in the market. Profit margins look good and the environment is favorable with prices rising due to a decrease in supply and increase in demand. It is a phase where more people can now afford buying their homes as opposed to renting.

3. Hyper supply

Going by the perception that the market has recovered and the returns are attractive as seen in point number two, more people invest their money into new projects and this leads to an oversupply while the demand remains unchanged. Mass building projects also mean a skyrocketing of prices because investors are too ambitious and their perception is that the market is open and fully recovered to accommodate their new projects. However, this is what leads to the last phase of the cycle explained below.

4. Recession

As supply rises beyond the level of demand in the market, the market collapses and projects that seemed promising few years ago cannot sell, a case that drives prices down quickly. Foreclosures follow and more owners realize they cannot pay huge mortgages they took because rent prices are forced down, and vacancy becomes commonplace. This is the scenario that was seen in 2007 and 2008. If you have any idea to invest in real estate, consult with several experts including a Tampa auto accident lawyer who is also experienced in matters real estate to help you make a smart decision based on the phases explained here.