WHAT ARE THE REAL ESTATE CYCLES? WHAT IS THE TYPICAL RELATIONSHIP BETWEEN SUPPLY AND DEMAND IN EACH STAGE OF THE CYCLE?

Real estate cycles are a well-known phenomenon that describes the stages a property undergoes over time as it ages and the market evolves. Understanding these cycles is crucial for investors, developers, and real estate professionals as it helps them make informed decisions about buying, selling, or developing properties.

The typical real estate cycle consists of four stages: Growth, Stability, Decline, and Revitalization. Let's take a closer look at each stage and the typical relationship between supply and demand:

• Growth (or Development) - This is the first stage of the real estate cycle. During this stage, the neighborhood is expanding as new houses, subdivisions, commercial buildings, and schools are being built. Demand is high, and supply is relatively low. However, the growth stage is usually short-lived as the market quickly becomes saturated.
• Stability (or Equilibrium or Maturity) - The second stage follows the growth stage. During this stage, the neighborhood continues to develop, albeit at a slower pace. Construction slows down as land availability diminishes. Properties undergo changes, and there is a mix of long-term residents and new arrivals. The supply and demand are relatively balanced, and this stage can last for decades or longer, depending on the location's desirability.
• Decline (or Old Age) ?- This is the third stage of the real estate cycle, where a neighborhood can no longer compete with other areas. Properties become functionally inadequate and lose market appeal. There may be fewer zoning and subdivision restrictions, and some investors may buy residential properties for rental units. As a result, property values decline, stagnate, or increase at a slower rate than in other neighborhoods. The supply of properties tends to exceed demand.
• Revitalization (or Rehabilitation) - This is the final stage of the real estate cycle, where a neighborhood undergoes a revival due to modest prices and convenience to employment, shopping, and other establishments. The area is "rediscovered," and people move in, modernizing their residential properties. However, this stage may also lead to gentrification, where the cost of living increases, causing property renters to be displaced.

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In conclusion, understanding the real estate cycle and the typical relationship between supply and demand is crucial for making informed decisions when buying, selling, or developing properties. By recognizing which stage a property is in, real estate professionals can tailor their strategies to maximize their investments' potential.

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