Ultimate Guide About Real Estate Cycle 2023

Written By Urban Real Estate Center
Last Updated: Dec 15, 2022 •

Are you looking to buy or sell a property in the next few years? If so, you must stay up-to-date on the latest real estate cycle news. The real estate cycle is an ongoing expansion and recession that greatly affects the housing market cycle. With the onset of 2023, investors are beginning to speculate what the next few years will hold in terms of real estate cycles.

This ultimate guide on Real Estate Cycle 2023 provides comprehensive information on the current state of the market and details the various factors that will shape it. From an analysis of interest rates to examining residential real estate trends, this guide will help you stay up-to-date on all things related to real estate investing over the next few years.

Not only that, but this resource also has valuable insight into what investors can do to optimize their portfolios amidst a changing market landscape. With this knowledge, real estate investors can succeed by anticipating market changes and capitalizing on opportunities.


What Is the Real Estate Cycle?

Real estate is a cyclical market; understanding the different phases of the real estate cycle can help you identify opportunities and make more informed decisions. The real estate cycle is divided into four distinct phases, each characterized by certain market conditions: Expansion, Peak, Contraction, and Recovery. 

The expansion phase is usually the most suitable time for buyers to enter the market, as prices are still low but have begun to climb steadily due to increased demand. During this phase, it's possible to find great deals on homes as sellers are motivated to sell, and interest rates may still be at historical lows.

Investors should look for signs of an impending peak to capitalize on potential gains before prices become too high. Once prices peak during the second phase of the cycle, demand begins to decline as buyers become less interested in entering a market with rising prices.


How Long Do Real Estate Cycles Last?

Real estate cycles are unavoidable, but they don't last forever. It is important to understand the real estate market cycle and how long it typically lasts. Real estate cycles typically last anywhere from 10-18 years, but depending on many factors; they can last much longer than others. Some people even believe that it's a seven-year cycle.

The most recent cycle we are experiencing has been going on for the longest time in the past 60 years! However, what remains certain is that these real estate cycles will always occur due to market and financial forces with deep roots in local economies.

The recovery phase marks the beginning of a real estate cycle and can be identified by an increase in home prices due to low inventory combined with increased job growth and rent growth. Depending on the local economy, this stage can last from one to three years.

During this time, investors look for opportunities, while homeowners may benefit from appreciation in their property values. As job creation continues, people become more confident in their employment security, allowing them to purchase homes at higher prices.


The Four Phases of The Real Estate Cycle?

The real estate cycle is a vital concept for anyone involved in the real estate field, from investors to developers. It is a cyclical process consisting of four distinct phases, each with unique characteristics. 

Understanding how and why the real estate cycle works can help you better assess opportunities and make informed decisions regarding your investments. 

Below we will look at the different stages of the real estate cycle and give you a clear view of the four phases and explore what each entails.

First Phase: Recovery

The recovery phase is the first stage of the real estate cycle. It typically follows a crisis period when occupancy rates begin to climb above their low-level downtrend, and foreclosure rates start to decrease.

This phase is clearly defined by variations in its recovery speed, as some recovery trends may bounce back from the downturn faster than others depending on a range of factors.

The recovery process is related to the concept of supply and demand. When demand for real estate surpasses supply, the recovery phase begins, increasing property values across markets.

Recovery also brings renewed consumer optimism as people with more confidence will be more willing to commit to a big purchase, like buying a new home or opening commercial real estate space for business.

Second Phase: Expansion

Expansion is the second phase in the real estate cycle and is a period of growth and opportunity for property owners. Increased new construction, property demand, rental rates, and property values characterize expansion.

Expansion is an ideal time to buy or invest in real estate, making it a great time to capitalize on potential investment returns. The Expansion also indicates a shift away from the buyer's market of the Pre Expansion phase.

Instead, expanding markets invite more competition among buyers as property availability becomes tight due to increasing demand. Expansion is a great time to consider buying or investing in real estate.

Experienced investors and first-time buyers alike can find potential benefits if they do their homework and have realistic expectations regarding rental income or sale prices that they may get from their real estate investments.

Third Phase: Hyper Supply

Hyper Supply is an often avoided phase in the cycle of real estate. Hyper Supply refers to when there is too much inventory for a given area's demand, leading to increased high vacancy rates and lower sale prices.

Property owners may look deeper into their pockets to pay off debt accrued from acquiring multiple properties during the Hyper Supply phases. This phase has been known to bring some distress to those involved in the real estate business, with fewer sales and opportunities available than during the Expansion process.

However, Hyper Supply affects commercial and residential real estate similarly, creating slower market pricing behaviors and increasing difficulty for buyers to find good deals.

Fourth Phase: Recession

The recession is the fourth phase of the real estate cycle and can be characterized by a drop in home prices, higher levels of inventory, decreased consumer purchasing power, high competition for credit by lenders, and lower sales volume.

This phase can occur due to factors affecting real estates, such as economic recession, recessionary pressures from volatile capital markets, or cyclical changes in consumer sentiment. The recession phase of the real estate cycle also generally follows a period when home prices have been increasing dramatically.

Inventory has been low, and buyers have had unprecedented access to financing and capital. During this period of recession, buyers become more cautious about when to buy homes as they weigh their options carefully due to increased levels of inventory on the market and reduced borrowing power.

Despite these challenges accompanying recessionary periods in the real estate cycle, history has proved that recovery will eventually come and new opportunities for buyers, sellers, and investors alike.


What are The Economic Factors in the Real Estate Cycle?

The real estate business cycle is an economic phenomenon that affects the nature of property markets, the real estate prices of homes, housing trends, and construction activity. Economic factors such as interest rates, political climate, and employment prospects play a major role in determining the state of the real estate market.

Interest rates directly impact buyer affordability and are one of the sector's most influential determinants of demand. The political environment can also make-or-break housing market potential with changes in government policy, both positively or negatively affecting growth opportunities.

Finally, local job markets greatly affect home-buying decisions as more prosperous regions tend to be associated with higher housing values. When taken together, these economic factors define and refine the entire real estate cycle for many areas across the country.


Final Thoughts

2023 is going to be a great year for the real estate industry. The market will rebound, and investors will have plenty of opportunities. However, it is important to remember that the real estate cycle is ever-changing and always throws new challenges our way. Stay informed and consult with experts to ensure you are prepared for whatever comes next.

Urban Real Estate Center

Discover the ultimate guide about the real estate cycle in 2023. Learn about the four phases of the real estate market and understand how each phase affects buyers, sellers, and investors.