The study, “The
Cycle Turns,” identifies predictable forces and trends that occur in residential
real estate markets and suggests strategies for prospective home buyers to get
the most out of their real estate
investment.

The study’s
author, Dr. Christopher Cagan, director of research and analytics at First
American, has developed proprietary methods and indices for profiling real
estate markets using data from First American’s Real Estate Trends application.
In this study, Cagan classifies 116 residential real estate markets across the
nation according to geography and econometric type and uses a variety of visual
and mathematical techniques to analyze historical and present price
behavior.

…Most real estate
markets have a long-term price growth rate of 5 percent or more. Cyclical
markets follow a business cycle pattern of wave-like motion that causes prices
to fluctuate by large percentages above and below long-term growth rates,
whereas linear markets tend to deviate only slightly from a steady growth
pattern.

…Mathematical
analysis of data from 1988 through 2004 indicates that cyclical real estate
markets such as Southern California, Florida, and the Northeast may be returning
to normalized growth levels.

The
study, “The Cycle Turns,” identifies predictable forces and trends that occur in
residential real estate markets and suggests strategies for prospective home
buyers to get the most out of their real estate
investment.

The study’s
author, Dr. Christopher Cagan, director of research and analytics at First
American, has developed proprietary methods and indices for profiling real
estate markets using data from First American’s Real Estate Trends application.
In this study, Cagan classifies 116 residential real estate markets across the
nation according to geography and econometric type and uses a variety of visual
and mathematical techniques to analyze historical and present price behavior.
Cagan’s study also makes projections for the year
2005.

A key finding of the
study is that there are two basic market types –cyclical and linear — and both
are highly predictable. Most real estate markets have a long-term price growth
rate of 5 percent or more. Cyclical markets follow a business cycle pattern of
wave-like motion that causes prices to fluctuate by large percentages above and
below long-term growth rates, whereas linear markets tend to deviate only
slightly from a steady growth
pattern.

Of the 116 markets
studied, 30 are cyclical, with most of the cyclical markets located in
California, Florida and the Northeast. Mathematical analysis of data from 1988
through 2004 indicates that cyclical real estate markets such as Southern
California, Florida, and the Northeast may be returning to normalized growth
levels.

“The turning of the
business cycle is as inevitable as the turning of the seasons,” says Cagan. “We
do not anticipate a crash coming, but we don’t think that it is realistic to
continue to expect 20, 25 or 30-percent per-month appreciation
rates.”

In summary, as is a
constant theme here – all real estate markets are decidedly local, yet still
subject to wider trends.