The life and times of an Arizona Investor

This will be my personal journal to document my failures and successes during my real estate experiences in Arizona. All stories, thoughts, and successes will be documented..

Wednesday, June 15, 2005

The importance of understanding market cycles..

Let's talk market cycles... The gurus at the seminar was breaking it down into three categories.

  1. Expansion Phase (3 to 5 years)- This the very beginning of a boom market. Its early in the phase , so most of the investors do not understand the potential opportunities. This when the money is really made and the savvy investors make their bets. The best way to track this type of market is to be on top of the market data and be able to extrapolate trends.
  2. Absorption Phase (4 to 7 years)- The "cat is out of the bag" This phase is when everybody is jumping in to get a piece of the Real Estate action. The builders are selling like crazy, everybody is talking about the growth opportunities.
  3. Contraction Phase - Market begins to shrink and happens very quickly. This phase will stay the same UNTIL something significant happens to bring it out. i.e., IBM comes to town for employment..

The gurus think that Phoenix is a couple of years into the absorption phase. Is there still money to be made? Absolutely! You just have to be careful and make sure the numbers work.

Its important to ask yourself the following questions:

  1. What cycle am I in?
  2. What's the best ways to make $$ in my market?
  3. How can I protect myself from contraction?

Good investing!

|| Bginvestor, 12:18 PM

3 Comments:

Very interesting, and very true, except for some anomolies that exist in the market that shrink or expand the time frames. In my geographic area, Austin, TX, we went through a crazy period around 1998-2001 due to the dot-com bubble. Austin was a mecca for internet start-ups, like DrKoop.com. When the tech bubble burst, so did the RE market in the area. We are still in a recovery period, but analysts are predicting this region to be hot again in the near future. Thus, it's a great time to be an investor here (i.e., similar to the "Expansion Phase").
Blogger Steve, at 6:04 AM  
I think being in a contraction market is good, if you buy right and can hold on, you have a great chance of making money. The best strategy is generating cash and than investing in a expansion market...

Good luck Steve!
Blogger Bginvestor, at 11:27 AM  
So true, Brian. In fact, my area is in a contraction phase, too. So many jobs have moved away. But, I am beginning to see an expansion phase on the horizon.

For investors, contraction phases are a great time to buy. Everything's on sale!
Blogger Trisha#1, at 10:10 AM  

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