The Four Stages of the Housing Market

The Honolulu Board of Realtors has data monitoring the market of single family homes, SFH and condos. From the trends it appears the housing market has gone through distinct cycles. By cycle it is meant the market has experienced a low and a high for a given period. The data also indicates that some cycles have been longer than others.

Since 1985 the record seems to support two separate periods or cycles. The second being, the current cycle we are experiencing. It further shows that these cycles can be further broken down into stages. There are four stages that characteristically market watchers have come to depend on.

  • Stage one: Is identified as housing units up, meaning inventory in the market where the medium price of those units are either down or flat.
  • Stage two: Is identified as number of housing units up and medium price is up.
  • Stage three: Is identified as housing units down and medium price up.
  • Stage four: Is identified as housing units down and medium price is down.

From the state of affairs above it would appear the housing market does not always follow the strict principles of supply down, prices up or supply up, prices down. Depending on how the numbers are interpreted and how strict one, sticks to supply and demand side economics where the principles do not stringently hold up one could conclude the market is instead in a transition phase. Yet as we will see some of these transition phases take years.

More appropriate the term transition is more suited for moderate variations within the phase itself where it can be observed that prices remain flat for a period of time before they head in the down or up direction. Rather than what we see as the obvious contradictions. The experiencing in a stage, where the inventory is down and the prices are down or the inventory is up and prices are up for a significant length of time. The following table represents the four stages of the market.

The interesting phenomena appears that the cycles are sequential and by the same token when reviewing the data for the pass 24 years the trends seem to be predictable to the extent the cycles come and go but the stages remain sequential. The following graphs demonstrate this specifically.

The presumption is that prior to 1985 the previous phase would have been stage one. It also follows that the current phase we are in stage 4 will be followed sequentially as well. Keep in mind the above graph represents SFH.

The data for the condo market is slightly different. It shows the condo market slightly lagging behind the SFH market. This gives those interested in selling or buying condos in the Honolulu market a distinct advantage over those wishing to buy in the SFH market. The following graph indicates the trends in the condo market.

In this case SFH becomes a leading indicator for the condo market on the island of Oahu.

How does this information help for the areas of the country where you live? The suggestion is the principles are the same. There will always be exceptions but in the pass Hawaii’s housing has lagged behind the rest of the country. The impact for the island however has traditionally been a softer landing. None the less there is definitely something here for all to observe.

For example, the following table hopefully is worth the time you spent to read this article. It shows the length of stages and the beginning and what might be a predictable end for this current cycle.

It would seem one way to evaluate or determine a cycle and its stages is to key in on price. It also appears that the cycles tend to always trend upward. Meaning in any given cycle the previous low will not be higher than the low of the following cycle.  This brings us to conclude the tables and the preceding graphs give rise to the possibility of a reasonable prediction which would be 2 to 3 more years in present day stage 4.

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Abron Toure
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Abron Toure
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Abron Toure
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Abron Toure
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Karen Philips
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Posted on Jan 15, 2009