During a seller’s market, homeowners want to know if they should sell their home now, or wait a bit longer in order to get top dollar. Home buyers feel pressure to buy a home before the market rises out of their price range. Both groups want to know; how long does a seller’s market last? Though there are many factors at play, economic research and real estate cycles can help to answer this question.
How Long Does A Seller’s Market Last?
What is a Seller’s Market and When Does It Happen?
In a seller’s market, including the current Michigan real estate market and most other areas across the nation, the demand for homes is greater than available housing inventory, making it much easier to sell a home. Seller’s markets occur during rising real estate markets, while buyer’s markets occur during falls, when many homeowners try to sell their homes at once and there are fewer buyers.
Predicting rises and falls in the real estate market will help to answer the question, how long does a seller’s market last? And how long will this seller’s market last?
Can a Seller’s Market Be Predicted?
Savvy investors and economists have noticed that real estate booms and busts come in cycles. The real estate rise around the start of the new millenia--and the subsequent crash in 2008--was one example of this cycle. While a variety of other economic factors can slightly alter these cycles and exaggerate the intensity of the peaks or falls, these patterns can help us predict how long a real estate rise will last, and therefore how long a seller’s market lasts.
Though a shock to America’s system, the financial crisis of 2008 and the real estate fall wasn’t a mystery to some. Economists have studied business cycles and real estate rises and falls as early as 1800, and these studies predicted a recession occurring around 2008 as early as 10 years before. This fall marked not only a business cycle downturn, but also a downturn in the real estate cycle. After the fall, recovery began, which later ushered in the start of a new seller’s market, where we are today.
Can this help us to predict how long the seller’s market will last?
How Long Does a Seller’s Market Last: Using Real Estate Cycles
Economists Henry George and Homer Hoyt, among others, studied real estate cycles as early as 1800. Hoyt’s research showed the U.S. real estate market follows a pattern of roughly 18-year cycles, and this has held mostly true for over 200 years. Modern-day economists like Fred Foldvary, Fred Harrison, and Robert Schiller continued to study these cycles, and were able to accurately predict the collapse of 2008 due, in part, to these patterns.
This research is helpful in predicting how long a seller’s market lasts because it not only reveals a pattern, but also shows how long rises last compared to falls. The rises in these cycles are much longer than the falls. Falls, where housing prices sink and buyer’s markets occur, happen relatively quickly over about 2 or 3 years. Real estate recovery periods and booms take up the majority of the cycle, lasting about 15 or 16 years.
Where And How Long Is The Seller’s Market in The Cycle?
A recovery period after a fall differs from a boom, where a seller’s market occurs. As the real estate market and the economy recover from a fall, housing prices slowly increase and buyers reenter the market slowly as well. In a boom, economic growth occurs more rapidly, buyers feel more confident and reenter the market in droves, while house prices increase at much faster rates. This occurs at about the latter half or third of the total rising phase, with the effect becoming more dramatic until a peak is reached and decline begins.
With this in mind, a seller’s market can be expected to last roughly 5 to 8 years.
How Long Will This Seller’s Market Last?
Using the previous boom and bust, the current rise, current market conditions and this 18-year theory, economists can predict a general timeline for how long the seller’s market will last. With the previous real estate value peak occurring at 2006, and the major fall appearing in 2008, the recovery period and current boom should last until about 2022 or 2024, about 16 years. A 2-year fall is predicted after this, and then the start of another recovery phase.
Will The 18-Year Cycle Hold True?
Other factors such as interest rates, government policies and subsidies, mortgage rates, lending, and international conflict, as well as regional real estate market differences, can affect these swings by two or three years, but they have not, historically, stopped the 18-year cycle itself (with the exception of World War II). Historic and modern economists say this is partly due to the nature of land ownership and investment, including the limited supply of land, the long timelines for development, and dramatic investment speculation.
No one can say for certain how long a seller’s market will last, but previous research and historic trends can help us make a prediction. With this in mind, seller’s can expect the market to favor them for at least another four or five years.
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