Market Phases: Is Vacancy Rate a Leading or Trailing Indicator
A recent forum post (Dollar-Cost Averaging Applied to Rental Property Acquisition) has me thinking about market phases: Recovery, Expansion, Hypersupply and Recession. (Boring and academic, I know. Bear with me.) Many markets are going gangbusters with new construction, but the markets I follow are continuing to see decreasing vacancy rates (which leads me to believe we're in the Expansion phase). As those additional units are absorbed, supply will catch demand, eventually. According to this market phase model, when we see vacancy rates spike, we will be entering the Hypersupply phase. Given that construction lags and new units will continue to come online, even after supply begins to outpace demand, Hypersupply will tend to lead to Recession. The question I'm hoping to get your thoughts on relates to our ability to see transitions in price trends coming. Do you think vacancy rate is a leading or trailing indicator for price? Put another way, when we see vacancy rates spike, do you expect median sale prices to have already started dropping, or do you think increasing vacancy rates will precede a price downturn?