Rise and fall - nothing new in real estate

Recessions are an inevitable part of the so-called "economic cycle" - repeated periods of growth and decline, which can be traced in history. They affect all markets, including this property. Successful investor in real estate can be defined as one who buys at the bottom of the cycle, summarizes Property Wire.

However, how to recognize this crucial time that determines the success or failure of the investor's estate?

Most economists agree that the economic cycle consists of five different stages, each of which blends into the next. Broadly they can be defined as a peak, contraction, recession, recovery and prosperity. During the peak of the shares and property are considered overvalued, and credit institutions were heavily burdened with debt.

When there is a stage of contraction, the sources of credit dry up and real estate transactions inevitably backwater. And while the stock market falls, while the overall economy does not fall into recession. Property prices and lower stock and access to credit is difficult if not impossible. Repayment begins again when it becomes available credit services.

At this point go on stage institutional investors, who quickly began to buy undervalued properties and shares. The next stage is prosperity. Prices start up again, rising wages and credit institutions are more susceptible to risk.

As an example, the tracking of this economic cycle could give Britain.

The last major correction in the property market in the UK in 1991 At that time banks and other lenders often offer mortgages for 100% of property value. Generous funding creates a strong desire for ownership, which inevitably leads to the peak of the housing "bubble."

With the economic slowdown, however, followed a total of 75 540 the process of forced removal of property, partly because the burden of high credit. This is the highest reported annual value and brings many problems for all market participants.

The market does not begin its recovery before the grave in 1994 At that time the British economy recorded 4.2 percent GDP growth, the highest level in six years. Sustained economic growth combined with rising incomes mean that people can afford bigger mortgages. Subsequently begins to grow demand for housing.

The current financial crisis has many parallels with that from its beginning in 1991 can be traced to early 2007, when the total value of high-risk mortgages is estimated at 1,3 trillion. dollars.

Soaring property prices have led lenders to take more risks. The number of lenders began to collapse under the burden of arrears, the most notable example is the case with Lehman Brothers one year ago.

The scale of the problem begins to emerge. With interbank lending to dry it reduced consumer credit and the slowing housing market. Once interest rates become sufficiently low, the credit flow again becomes a liquid. At this point, leaving the market institutional investors' confidence returned and began to rise.

Typically, the rise starting from the same spot where it came from the fall. That is why the U.S. housing market is cited as a key - you begin to recover, it will be taken as a sign for the rest of the world. By rating agency Standard & Poor, which made the index for housing prices in the U.S. Case-Schiller, believe that the market will reach bottom until October 2009

Analysts advise investors in global property to consider in countries and regions that have not been so severely affected by the current economic crisis. Central and Eastern Europe into account the economic slowdown, and Bulgaria in particular, remain unaffected by the toxic debts, says Property Wire.

However, there is always an element of uncertainty. Could someone says with certainty that the property market in London has reached its lowest point? Even with the release of a recession, the unemployment rate is expected to grow. If people are unemployed, obviously can not cover their mortgages.

Property and all other types of investment carry a high degree of risk. A thorough analysis of the economic cycle can do much to reduce risk, but can never eliminate it.