Real estate market cycles and their economic drivers

Understanding the dynamics of the real estate market

In the second part of our blog series, we delve deeper into the cycles of the real estate market and shed light on the driving forces behind these periodic fluctuations.

Understanding real estate cycles

Real estate cycles are a series of recurring patterns in the real estate market, consisting of phases of expansion, downturn, recession and recovery. These cycles can last from a few years to a decade or more and are often synchronized differently across different real estate segments.

Expansion phase

This phase is characterized by rising demand, increasing construction projects and rising property prices. Optimism and positive economic prospects drive up investments.

Downturn

During this phase, demand begins to stagnate while supply continues to grow. This leads to an oversupply in the market, which can result in falling prices and reduced construction activity.

recession

The recessionary period is characterized by falling real estate prices and a lower number of transactions. During this time, the number of foreclosures increases and construction projects are often put on hold.

recreation

In the recovery phase, real estate prices slowly start to rise again, demand stabilizes and investor confidence returns. This leads to a gradual resumption of construction activity.

Economic drivers behind the real estate cycles

Economic growth

GDP and labor market data are important indicators of a country's economic health and have a direct impact on the real estate market.

Central banks’ interest rate policy

Central banks influence lending and thus real estate prices with their interest rate policy. Low interest rates can boost demand and thus prices.

Global economic events

International economic crises, trade conflicts and geopolitical tensions can impact national real estate markets.

Demographic factors

Age structure, migration and urbanization influence the need for housing and the type of real estate required.

Technology trends

Innovative technologies, such as the Internet of Things or artificial intelligence, are changing how real estate is used, managed and brokered, which in turn can influence demand.

In the next blog post, we will look at the real estate market in times of crisis. We will understand how recessions and other economic shocks affect the real estate market and what long-term trends can result from them.