The next phase is very exciting, The Recovery Phase. The first part of any recover phase is where Inventory levels start stabilizing and stop increasing. Prices still decline slowly and the amount of transactions (sides) start stabilizing. Well into this phase the inventory level start declining as the amount of transactions (sides) start increasing which stabilize the pricing. A new energy seems to appear. There comes a new excitement in the market and buyers, investors and borrowers start speculating.

Warren Buffet says a great thing. He says, “When people get Greedy, get Fearful. When people get Fearful, then get Greedy”.
People look forward to the Peak phase. This is always exciting. The problem here is this is when most people lose their money and not make it. One makes money when a buyer buys a property not when a seller sells a property. The Peak Phase gets everyone excited and people are scared they are going to lose out on a deal so they rush and buy when all others are rushing and buying. This is a time to watch out and be careful!!!!
Another thing, what is happening in California is probably not happening in Atlanta Georgia. November 2009, the whole of San Diego County had a total of 9,000 listings that were active. Atlanta city itself had over 96,000 active listings. I had a friend from the UK ask me the other, “Kurt, so what is happening in the US housing market right now?” Well, there is not simple answer because it depends on what state and metro area. There are other factors such as employment, population expansion and influx of people. Also, the employment figures are often lagging indicators that determine confidence, demand and ultimate effect the inventory and price points.

The Four Phases: The Trough

When analyzing the market, and the amount of transactions (sides) keep falling and the inventory levels keep climbing, the market begins to enter a new phase, called the “Trough Phase”…Ouch… we do not like this phase do we? Does anyone? No, because the trough is at the bottom and many consumers and professionals cannot even see out of the trough. Some think the sun is not even going to come up again. Some think this is the end of America and its dream. Some think the market will never return to what it was…..and in a way they are right…..but it will bounce back to a peak again but not the way some think it will or thought it would.
The trough phase seems to have all the 3 housing market drivers in a “bad position”. The inventory levels are high, the price points are low and there are few transactions happening. This is not bad for everyone. This is very attractive to investors especially with cash. Many people make their money at this time. They buy Low, lots of inventory and little competition.

The Four Phases: The Correction Phase

The Peak and Corrections Phase

The markets in California started reaching the end of its Peak phase around the middle of 2005. Prices had been climbing and were too high and there was a need for a correction. The market started to move in a direction towards a correction, the second phase. What indicators do we have to alert us of a potential market change? The first sign is when the amount of transactions or “sides” that close stops increasing and begins to stabilize, there a shift that is about to happen. The shift that happens is the market moves from a “Peak” to a “Correction” phase. Prices still are slowly rising but the amount of transactions (sides) stabilize.

As the amount of sides or transactions begins to drop, we see the inventory levels start stabilizing (not declining any more). As this happens we are well into the 1st part of the Correction phases. As we get deeper into the correction phases we will see the Inventory levels keep climbing, the prices still rise slowly but at a lower rate of increase. The amount of transactions keep falling and declining. See the slide below.

All markets go through this phase, not just real estate. This correction phase many know there is a change in the market but many deny the phase change. Many consumers but especially sellers refuse to admit the correction has begun. This is when sellers cannot see the need to price their properties correctly because they think that prices will still rise sharply. The price increase in this phase is far less than the Peak Phase. 2006 in California and a few states such as Nevada, Arizona went through a difficult time. Professional realtors battled to educate their sellers on pricing their properties correctly because of their denial of the market changing . 2007 this became easier and by 2008 there was little denial any longer. As the amount of transactions (sides) keep dropping, the inventory levels start rising even though there are still small price increases

The Four Phases of a Market, the Peak Phase

Understanding the 4 phases of the market cycle, it is important to understand the 3 drivers in the housing market which I shared on Thursday July 23rd 2009. Again, thanks to Alxe Perriello the President and Ceo of Realogy who recently impacted our lives. The 3 drivers are Inventory, Price and amount of Transactions or sides. Just like we experienced in 2003, 2004, and the first part of 2005, Inventory levels were low. Inventory levels normally control the market and are the foundational basis of the market. During a Peak market, low inventories will increase the prices. As prices keep increasing, eventually buyers will not keep on paying prices they cannot afford.