Analyzing 40 Years of Housing Market Trends: When Will the Next Low Point Arrive?

The “10-Year Cycle” in Real Estate?

There’s a prevailing theory about the “10-year cycle” in the real estate market, suggesting that housing markets typically undergo a full cycle of highs and lows approximately every decade. According to this pattern, years ending in 0, 1, 2, or 3 are often market lows, while years ending in 7, 8, or 9 tend to be peaks. This rule has proven helpful for investors looking to gauge market trends and time their buying or selling decisions. Since 1983, the Southern California real estate market has largely adhered to this pattern. However, recent years have seen deviations due to factors such as tax reforms, the pandemic, and interest rate changes. So, when might we expect the next cycle low?

From 1983 to 2024: Verifying Real Estate Cycle Patterns

Mr. Hu moved to Los Angeles in 1984. Between 1987 and 1989, Southern California’s real estate market was booming, attracting numerous investors. However, this period marked a market peak, as housing prices began to decline after 1989. This trend aligns perfectly with the pattern: years ending in 7, 8, or 9 often represent market highs, while the years from 1990 to 1994 served as a market low, offering prime buying opportunities.

From 1997 to 1999, the housing market remained lukewarm, with modest investment returns. However, the years 2000 to 2003 saw a strong recovery, creating an ideal period for investors to capitalize on rising property values. The financial crisis of 2007–2009 triggered a sharp decline in housing prices, bringing the market back to a low point. It wasn’t until 2010 to 2013 that the market once again provided favorable entry opportunities.

Tax Reform and Market Shifts: Causes of Cycle Deviation After 2018

According to the “10-year cycle” theory, the housing market was expected to hit a low point in 2019. However, an unexpected factor disrupted this prediction—Trump’s 2018 tax reform. This reform reduced corporate tax rates from 35% to 21%, prompting a significant repatriation of overseas profits by U.S. multinational corporations. It is estimated that tech companies alone held approximately $1.6 trillion in profits offshore.

Following the tax reform, many corporations brought funds back to the U.S., using them for stock buybacks and market investments. As a result, both the stock and housing markets defied expectations, remaining at elevated levels throughout 2019 instead of experiencing the anticipated downturn.

Pandemic and Interest Rates: The Unexpected Surge in 2020

At the start of 2020, the outbreak of the COVID-19 pandemic prompted the Federal Reserve to slash interest rates to near-zero levels. This emergency move further fueled a surge in the housing market, breaking the anticipated cyclical correction during this period. The low-interest-rate environment instead drove housing prices to new highs, with sustained growth throughout the pandemic. By 2024, the market is showing clear signs of being “overvalued,” with price increases reaching levels that many find unaffordable.

Predictions for the Real Estate Market in 2025-2026

The trajectory of the housing market in the coming years will largely depend on interest rates, inventory levels, and overall economic conditions. Over the past few years, one-third of home loans were secured at historically low-interest rates, prompting many homeowners to hold onto their properties. This has kept market inventory tight, even in a high-interest-rate environment, preventing significant price declines.

However, if interest rates begin to fall in 2025 and 2026 amidst economic slowdown and rising layoffs, the market could shift. As inventory constraints gradually ease and more homes enter the market, housing prices may start to decline.

Conclusion

While the “ten-year cycle” principle in real estate has been validated over several decades, it has faced deviations in the past decade due to policy changes, tax reforms, and fluctuating interest rates. Though the future applicability of this cycle remains uncertain, the market could reach a low point after 2025 if economic stagnation and declining interest rates align. For long-term investors, this offers an opportunity to stay agile and seek favorable entry points.

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