Housing Market Cycle and Real Estate Stages

The housing market like most other free markets goes through a recurrent cycle over time. The housing market cycle is divided in 9 predictable stages. Those real estate stages are defined by consumers’ sentiments consensus.

The value of this analysis is to be able to have a general idea of where we stand within the housing market cycle and which stage is coming next.

Also there is usually a strong correlation between the 9 consumer Sentiments and housing prices direction & sales volume.

For example the “Euphoria” stage climaxed in 2006 in most real estate markets. 2007 and first part of 2008 were the years of “Denial“. The crash in the financial markets in late 2008 put a lot of pressure on the real estate markets as well. Last November and December, the average home prices in Middlesex County experienced a stronger decline. Today we most likely find ourselves in most market in the “Despondency” and “Depression” stages. Hope seems to be a word that the media are starting using again but we might not be there yet.

From a buyer’s perspective, the “Despondency” and “Depression” stages represent the strongest buying opportunity with the less risk.

From a seller's perspective, the "Euphoria" stage represents the strongest selling opportunity with the less risk.

The following graph describe the housing cycle and the 9 different stages: 

Source: Realtor.org and Westcourts Funds

Which Real Estate stage are we in today?

A cycle doesn't really have a start or a stop. There are no magic indicators either that can point us exactly to the beginning or end of a specific stage.

However business common sense and economic and housing commentaries by respected economists can help us:

"Mortgage rates rose slightly this week amid positive economic news that the economy may be approaching the bottom of the recession," said Frank Nothaft, Freddie Mac vice president and chief economist.

In addition, the positive news was corroborated by Fed Chairman Bernanke when he stated that "he expects economic activity to bottom out, then to turn up later this year. He also noted that the housing market is beginning to stabilize."

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