What is happening to the Real Estate market?

We have to understand that the Real Estate market, just like the Stock market and like most human behaviors, works in cycles, has trends, pulses. This cyclical changes happen because there are humans involved.
Through the years, we have learned to measure those cycles, to understand the basic reasoning behind them and in short, this is what generates them (in Real Estate):

1. Having a home is human nature, an instinct, a need to nest, to protect our family. As population grows, there will always be a need for an equal increase in housing.
2. There are areas that are more attractive than others, or located in areas that have better climatic conditions, better natural settings, etc... these areas will always appreciate at a faster rate than others that are not that priviledged.
3. As population grows, an insuficient supply of houses creates an unbalance between supply and demand, creating what we know as an Expansion Market, a seller controlled environment, everybody wants a house, the seller controls the transaction.
4. This excessive demand with limited supply encourages developers to build massive quantities of homes, prices to soar, sellers to feed their greed. At some point, the supply starts leveling with the demand, at the same time houses become unaffordable... we reach the phase called: Saturation.
5. Right after this, the perception of value by the consumer suddenly changes, buyers begin to realize that even if they can afford to buy, there is not much expectation of prices going even higher, so they might be facing a financial loss. They stop seeing value in owning a home.
6. Builders begin to fear that their inventories will not find a buyer, so they stop building at once.
7. Media starts yelling Wolf!, all the "chicken littles" appear on the news, everybody predicts the end of the "bubble".
8. The market slows down, houses stop selling, and then it begins: The home owners that realize they pay more than they could really afford, the buyers that took on aggressive financing as the only means to fulfill their desire to own a home, begin to feel the crunch, the dream is over and now they realize that they are paying far more than what they can. They are on a financial crash course, so they decide they need to sell their home.
9. At this point the new seller realizes that the home will not sell so easily, because there are no buyers out there, (there are always buyers, just not that many). The seller panics and becomes aware that the only way to sell their home is to lower the price of the home, prices drop, and drop further, exsacerbating the situation, creating a snowball effect. This is the absortion phase.
10. This phase will continue until the following happens: + Inflation keeps eroding the buying power, prices go up in everything except for houses. + Population keeps on growing, the need for housing is intrinsic, even if people don't want to buy a house, they need a house, and sooner or later they will have to buy one. + Rents skyrocket, because people have not been buying homes, rents become scarce and landlords take advantage of this. + Investing in income property starts making financial sense again. + The perception of the price of homes suddenly changes, now houses look cheap...
11. You guessed right, a new Expansion phase has begun.

Real Estate is a 10 year cycle with 5 year memories.

Always remember that this cycle doesn't change. Also remember that investing in a buyer's market is what you need to do if you want to buy smart, after all: you make money when you buy, not when you sell.