The market changes every seven years. And now it’s ready to take a big turn. Have you heard that? Is there really such a thing as a “seven-year rule”? Is it legitimate? Let’s talk about it.
A FEW THINGS TO CONSIDER
1) Behavior: The market doesn’t have to behave a certain way every seven years. Bottom line. Case-in-point: We’ve had almost eight years of price growth in Sacramento in the current price cycle.
2) There is a cycle: Sometimes we only hear about the market being “hot”, but there really is a rhythm over years where prices go up and down. In many locations the market tends to change every decade or so, so I get why people believe in the seven-year rule. But keep in mind some markets are more flat over time rather than super cyclical like California (big point).
3) Talking in a range: I’m not a huge fan of being dogmatic about seven years, so I prefer to hear things like, “The market tends to change every 7-10 years or so.” Of course this type of statement might be totally off in some areas of the country, but in my market I get it when people say this because of historical data.
Now to some new images…
PRICE CYCLE IMAGES: I used the Freddie Mac Price Index to tell the story of the market over four decades. I like this price metric because it goes back 40 years. I’d love to use MLS instead, but that only goes back 20 years. Anyone have a different metric suggestion?
How long were the past few UP cycles before the market turned?
CALIFORNIA
1980s: 7.9 years
1990s: 10 years
Current: 7.5 years
SACRAMENTO
1980s: 7.1 years
1990s: 8.6 years
Current: 7.7 years
How long did the past few DOWN cycles last?
CALIFORNIA
1980s: 9 months
1990s: 5.5 years
2000s: 5.6 years
SACRAMENTO
1980s: 17 months
1990s: 5.9 years
2000s: 5.9 years
NOTE: It’s tempting to try to predict this next cycle based on the past few, but be really careful with that. There is no rule that says the market always has to behave the same.
Bonus (Adjusted for Inflation): I adjusted for inflation here to help compare dollar amounts over decades (and to satisfy econ / grad student friends who prod me about this).
OTHER CYCLE CHARTS: I have other price cycle charts based on MLS data over the past 20 years. I have charts for Sacramento, Placer, Yolo, & El Dorado County. See my big monthly market update (scroll to “price cycles”).
I hope this was interesting or helpful.
MAKE THIS GRAPH FOR YOUR MARKET?
Do you want to know how to make a price cycle graph? I made a template to help you do this. Download my template and follow the instructions in the Excel file. If you make something, please tag me online or email me. I’d love to see what your market looks like. Here’s a video tutorial. Here are a few more tutorials also.
Questions: What stands out to you in the images above? Any other thoughts about price cycles?
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Did you make the real price graph for Erin or me? LOL
For you, Erin, and some other Twitter folks. I actually like the adjusted graph. I didn’t adjust for inflation in the main image with bars though because it can actually tweak the trend a bit.
Achievement unlocked!
Yep, thanks Erin. I appreciate the prod to think differently about numbers.
Great post Ryan. Some have told me they think the seven year cycle is a self fulfilling prophecy. If enough of the market believes it in your area, then it will be true. Maybe we need to do a survey of buyers and sellers?
Thanks Gary. Interesting idea. I suspect the 7-year rule sounds really true in certain markets, but other markets just don’t have as much action because the trend isn’t as dynamic. I know in California we’ve had very definitive cycles, but that’s not how it plays out everywhere.
Great info Ryan. Thanks! As I read I keep wondering about population increase and how that line looks next to the California and Sacramento Area Price Cycles lines. Could a correlation exist?
Thanks Jai. That’s a great thing to wonder. I imagine population growth is connected to the overall trend of the market. Are we seeing growth, decay, stabilization, renewal? That’s the cycle neighborhoods have, but I think we have to look to the market as a whole too and wonder about these same things. I just know for Sacramento we are seeing some positive growth right now in terms of development. I wish new construction was more aggressive as we need more homes, but it’s good at least to see more growth lately… If someone makes a graph with population growth, I’d love to see it.
By the way, as a side note, the Sacramento Business Review does a huge annual update on the state of the economy. They’re likely to have an update coming soon too. I definitely recommend for others to follow their report. https://www.sacbusinessreview.com/
Ryan, the ‘Download my template’ link is broken; I got a 404 Error.
Thank you, the charts are interesting. You might add recession periods to see if they correspond with Down Market periods.
Classic. Haha. Sorry about that. It’s been fixed. It should be working now.
Great info Ryan – when I click to go to the template, though, it takes me to content not found …. is it somewhere else?
Thanks!
My bad Nan. It’s been fixed and should be working now. 🙂
I’m in Santa Clara County, and it seems like the end of every decade is a peak; 1989, 1999, 2008ish and 2019 appears to be happening. I think 1979 and 1969 were too?
The interest rate cycle is interesting too; rates have been coming down for 30 years and have bounced along a bottom for about 7 years.
Thank you Jeff. Interesting to hear about a cycle change every decade or so. Yes, rates have basically declined for more than 30 years and that reminds us rates don’t drive the market cycle. Yet for now as we struggle with affordability the market does feel hyper-sensitive to rate changes. Thanks again.
Thank you for your observations, Ryan. It is interesting for sure. There does seem to be a rhythm, but it seems like the downturns have very little in common with regard to length of time or magnitude. The 80’s and 90’s, not so bad. The Great Recession…BAD. It is one thing to say the market is going to change. It is quite another to anticipate the magnitude of the change. It would be nice to find a guy that could do that!
Thank you Ray. I totally agree. What happened last time is not a template for the future. Lots of so-called “prophets” speak in generalizations about a coming change, but I find that unsettling because it’s not really saying anything. Duh, of course the market is going to change. That’s what markets do. For any onlooking real estate prophets, please make your predictions very specific in terms of when exactly the market will change and how much the market will change.
Its interesting that the graphs don’t show an upswing for the 90’s/DOT.com “bubble” – they show a downswing. I think most of the Bay Area saw a big uptrend in the late 90’s.
Thanks Jeff. I’m glad you mentioned that. The Bay Area could be a different animal compared with Sacramento and California. This is why it’s fun to poke around at the Freddie Mac Price Index site because you can compare graphs on their website. I did check SF though and it looks pretty similar though to Sacramento. Both markets seemed to show an up trend after a dip in the early 90s. It seems post-recession / housing lull (from the earlier to mid-90s) the markets started to fare better. http://www.freddiemac.com/research/indices/house-price-index.page
I’m sure it’s posted somewhere, but can I see the inflation adjusted chart up to current values?
It’s not posted somewhere. Not yet. I need to get to that. I’ve been sharing this visual through 2019 in all my recent presentations. Soon it will happen. Thanks Seth.