Understanding the Real Estate Cycle (& Why NOW is the Time to Buy!)
In most parts of the country, winter weather is in full effect, keeping real estate volume suppressed until nicer weather finds its way back. It’s an interesting annual cycle that most markets experience. As a real estate investor, it’s important to understand how the real estate cycle in your market affects both sales and rentals.
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For those investors planning to buy and sell real estate this year, it’s essential to gauge just how much your market is impacted by the seasonal cycle. For some markets that have little variation in the weather, the real estate cycle probably isn’t as pronounced. But for many markets that have very distinct seasons, it is common to see sales slow down in the winter and pick back up in the spring and summer.
The Challenges of Selling in Winter
It comes as no surprise that the majority of homebuyers aren’t out shopping for homes in the dead of winter. Besides the fact that the cold temperatures keep people indoors, many buyers have children in school and would prefer to wait until the end of the school year to pack up their families and move to a new location.
Sellers understand this cycle as well. For one, with fewer buyers in the market, there is less competition, and therefore the notion is that selling a house in the winter will not allow the seller to maximize his or her potential selling price. Also, as most homeowners will tell you, houses simply don’t show as well in the winter (again, I’m not talking about Southern California or South Florida). With dead lawns and naked trees, property in general just doesn’t have the same curb appeal as the spring and summer months.
It Applies to Rentals, Too
I actually bought a handful of rental properties in Cleveland last year. (As an aside, I spent some time up there and was very intrigued with the price-to-rent ratios, even in very good neighborhoods with very strong rental markets.) One of the interesting dynamics in Cleveland, however, is the fact that almost all renters get situated before Thanksgiving. With the harsh winters, nobody wants to be out looking for a place to rent after it’s turned cold. My property manager basically told me that we need to get the properties rented in the fall because after that, we wouldn’t be able to place tenants until things started to thaw out.
The Importance of Planning Ahead
I actually have a new construction property that unfortunately got completed in December. However, knowing that the market for buyers was going to be thin during the winter months, I made sure I had inexpensive financing on the property and simply built some carrying cost into my numbers in anticipation of the spring selling season.
There isn’t necessarily anything wrong with having a property ready to sell in the winter. However, it’s important to plan ahead and prepare for the possibility that you will have to carry the property until the market picks back up.
As a real estate investor, understanding how the yearly cycle affects your ability to sell is important to your success. I would venture to say that right now is a GREAT time to begin looking for those properties you want to fix and flip. Whether you’re looking for properties on the MLS or digging for off-market properties, the competition isn’t quite as fierce as it will be in a few months. Also, you have time to acquire the property and get it renovated in time for the spring selling season.
What have found in your market? Are you anticipating the market to heat up in the coming months?
Leave a comment below, and let’s discuss!