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First American Real Estate Solutions Study Offers Insight Into Real Estate Market Cycles

May 19, 2006

   Related Information
The Real Estate Cycle in 2006:
Evaluating Market Position, Identifying Turning Points and Constructing Scenarios [pdf]

ANTA ANA, Calif., /PRNewswire-FirstCall/ -- First American Real Estate Solutions (RES®)has released a new study entitled "The Real Estate Cycle in 2006: Evaluating Market Position, Identifying Turning Points and Constructing Scenarios," which investigates where the residential real estate market stands today and where it is likely heading based on historical economic information.

The study by Christopher Cagan, Ph.D. and director of research and analytics at First American RES, examines more than 100 metropolitan areas between 1988 through 2005 by analyzing the median sales-price index for existing single-family homes as published by the National Association of Realtors®. Cagan applied proprietary mathematical techniques in classifying those markets and investigating their present status and likely future behavior. He suggests that markets where prices have not risen rapidly may be the best part of the country in which to purchase or invest during 2006.

During the last several years, home values have risen rapidly in almost every market in the nation. In many coastal areas, prices have more than doubled since 2000. Now prices in most areas are rising at single-digit levels, flattening or slightly declining -- an indication that conditions have returned to normal following a strong bull market. Utilizing current information and assumptions about future prices, interest rates and metropolitan income levels, the study discusses and analyzes the effects and likelihood of five scenarios ranging from strongly optimistic to strongly pessimistic.

"The residential real estate market stands at a pivotal position in the spring of 2006," said Cagan. "Through this analysis, we provide a framework for assessing where the market may be heading to assist real estate professionals with identifying potential opportunities and risks."

The study identifies four market types: cyclical, linear, hybrid and catch-on. Most real estate markets have a long-term price-growth rate of 5 percent or more. Cyclical markets, such as Southern California, Miami, Honolulu and New York City, follow a business cycle pattern of wave-like motion over 10 to 15 year periods, which causes prices to fluctuate by large percentages above and below long-term growth rates. Linear markets, which tend to deviate only slightly from a slow and steady growth pattern, include Wichita, Kan.; Atlanta; Nashville, Tenn.; St. Louis and Indianapolis. Hybrid markets, which show characteristics of both linear and cyclic markets, can be found in Chicago and Seattle. Catch-on markets, or markets that have traditionally behaved in a linear fashion but recently experienced a strong move up or down in prices, are found in Phoenix, Detroit and Las Vegas.

Access to an electronic copy of the study is available at

Source: First American Real Estate Solutions

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