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A History Lesson on Real Estate
Cycles

 

About every ten to twelve years, as an average,
real estate values tend to double in most major metropolitan areas.  For
example, in the 1920’s, the original colonial homes sold for just under $2,500
in Long Island, New York.  Since then, real estate prices have doubled almost
eight times over the last 80 years.  That averages out to a 100% increase
approximately every ten years.  An interesting note to this is that about every
ten to twelve years, real estate values must correct before they enter their
next “doubling cycle”. 

 

 

It’s Not a Matter of If, It’s a Matter of
When

 

The evolutionary process is three steps forward
and one step backwards.  For example, imagine a 100% increase occurring in three
steps of one-third parts each.  The last market cycle of the 1980’s was one in
which real estate values doubled, followed by a correction of the early 1990’s,
which equated to a 20-30% decrease over a three to five year period.  This cycle
was then followed by the post-millennium cycle boom of 100% from the last high
point of the previous cycle.  We are now in the naturally-occurring phase of a
correction in the cycle.  This essential and beneficial adjustment gives the
market pause to reflect and re-gather momentum and strength for the next
doubling cycle.  This has occurred time and time again because the long-term
demand for housing is growing an exponential rate based on population growth to
almost double in the United States by 2050.  This will continue to drive prices
higher as it has for the last 100 years.

 

Since we now know based on history that nearly
all real estate prices will double again, it’s not a matter of if, it’s a matter
of when your existing houses will sell.  Sharing these facts with your
prospective buyers will put them in the right frame of mind to buy now versus
next year if they plan on staying in the home more than five years.  If a buyer
is apprehensive about being the right time to invest, ask him if he’d like to
buy his parent’s home for the price they paid for it – the answer will be
obviously “yes”.


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