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
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