Agent's Perspective - Real Estate Cycles

You may have heard Realtors say “every seven to ten years the real estate market goes through a cycle.” The upward and downward fluctuations in any business are called cycles. The four stages of a business cycle are expansion, recession, depression and then finally revival. Real Estate cycles usually occur within a certain predictable number of years. They are caused by many differing forces in the economy such as population growth, job growth, interest rates, inflation rates, etc. 

While we may not know what the future will bring, there are numerous ways to analyze the past and make some educated assumptions as to the future of the real estate market. The term ‘real estate market’ describes the overall state of real estate in a particular area. Real estate markets vary considerably from location to location. 

In our area, the San Francisco Peninsula, it would be normal for prices to rise steadily for approximately seven years. Downward trends typically last two to three years. However, the more dramatically prices increase, the shorter the upward cycle will be. We have experienced dramatic price increases over the past year and a half. Under normal circumstances we would expect prices to increase at a moderated rate for three or four years before leveling off or receding. 

It is very important to remember that there is a lag between other economic factors and the real estate market. Real estate takes longer to peak from strong upswings and longer to recover from depressed periods than most other segments of the economy Local real estate conditions may not correspond to the general, overall economic conditions in other parts of the nation. 

We enjoy a unique situation in the greater Bay Area and Peninsula. We have San Francisco to the north and San Jose to the South, with Silicon Valley in the middle. San Francisco is one of the most business oriented cities in the world. We have high technology companies calling this area home, an incredibly diversified employment base, and unlike most other areas, we have a limited supply of property or buildable dirt on the peninsula. This explains why our real estate prices are so high. Most new homes builds are either teardowns or rebuilds. 

We feel that there are a few other places in the country that can match the San Francisco Peninsula in its tremendous potential for real estate investing. We live in one of the most desirable places on earth.