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First American Study Identifies Forces Influencing Residential Real Estate

March 3, 2005

New Study Investigates Historical Trends in Housing Market

ANAHEIM, Calif., /PRNewswire-FirstCall/ -- First American Real Estate Solutions (RES®) released a new study that demonstrates that the real estate boom experienced by much of the nation during the last several years was part of a predictable economic cycle.

The new study entitled "The Cycle Turns," authored by Dr. Christopher L. Cagan, director of research and analytics at First American Real Estate Solutions, 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.

Cagan, who has developed proprietary methods and indices for profiling real estate markets using data from First American's Real Estate Trends application, 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 five 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."

"First American's advanced analytics have made possible the development of deeper understanding and new insights in economic analysis," said George Livermore, president of First American Real Estate Solutions.

Source: First American Real Estate Solutions



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