This is our last post in our series about "The Garrison Cycle". A theory created in 1985 by Marc Garrison who also started the National Association of Real Estate Investors.
As we enter the Expansion Phase, demand for all property (investment, single family, new construction, and even rental) begins to increase. Eventually, demand will overtake supply and prices of properties and rent amounts will increase dramatically. The supply of vacant apartment will decline dramatically and landlords will be receiving dozens of calls for each vacancy ad in the newspaper. Inflation will start to enter into discussions and on-market time will decrease dramatically with the best homes being sold even before the sign goes in the yard.
Because it is impossible to know how long this feeding frenzy for property will last, sellers should sell early to avoid the downturn into the Equilibrium Phase. If they bought during the Decline or Absorption phases, the sellers should experience high returns on their investments. Buyers should stay away from paying the over-inflated prices and look for solid performing properties that can weather the upcoming storm of the next phase.
The previous Expansion Phase started in 2001 and lasted until about 2005. It was market by double-digit growth of prices in many markets. In Minnesota, we saw multiple offers at over list price on the 1st day a property went on the market. Unfortunately, the future is difficult to predict. If the Absorption Phase actually starts in late 2008, history shows us that we may not see the Expansion Phase until 2018.
Scott Ficek is a Realtor with Keller Williams Integrity in Minneapolis and helps new and seasoned investors buy and own investment real estate. He owns and manages almost 30 investment property units from single to multi-family. Find his blog at www.minnesotainvestmentrealestate.com. His website can be found at www.mnirea.com
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