Riding the real estate supply and demand wave

There are many factors to take into consideration when buying real estate and one which is often overlooked is the “supply and demand wave”. While the underlying economy in the region can remain relatively intact the supply and demand wave can have a material impact upon prices. There are ways and means of riding this particular wave but this may mean buying property before the bottom of the market and selling before the top.

Getting in before the buyers emerge

Whether you are buying real estate or stocks/shares there are times when they are in favour and times when they are friendless. In the aftermath of the 2008 US mortgage crisis, which brought down the worldwide economy, real estate investors sat on the sidelines watching sellers struggle to obtain fair prices. As more and more real estate investors began to panic so we saw a collapse in prices.

Like vultures, the more savvy real estate investors were sitting on the sidelines just waiting for that change in sentiment and the “bottoming out” of the market. In hindsight the real estate investment cycle we are experiencing today is an elongated version of the more traditional cycle. So, many investors had to wait longer than normal and it quite literally became a game of poker – who blinks first.

Beating the cycle

Many experienced real estate investors began to increase their exposure bit by bit as markets continued to fall. They knew full well, from past experience, that once the market hit rock bottom it would likely experience a significant bounce as the would-be buyers descended. The idea of buying before the bottom is to avoid missing “good value” as and when asset values finally bounce and stock becomes scarce and prices rise.

Selling before the market tops out

On the flipside of the coin many experienced real estate investors with exposure to recovering markets (those markets which have possibly overextend themselves) will look to sell before the market turns. These are the investors who are not interested in squeezing every last cent out of their investment but are happy to take a profit and cash in their chips before the market turns. Historically at this point this is when the buyers disappear and panic sellers emerge creating something of a “race to the bottom” which can drag prices down.

Cashing in your chips just before the market turns is the Holy Grail of real estate investment but in reality if you can get out reasonably near the top, banking a profit along the way, this should be seen as a result.

Momentum is everything

On the way down sellers are a plenty and buyers are fairly scarce but markets can turn very quickly with sellers disappearing and buyers emerging. There is a similar scenario with overstretched markets with buyers happy to push prices to the limits and sellers looking to time their sales to perfection. Then when the market turns the buyers disappear and the sellers emerge – do not underestimate the power of momentum!

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