Anticipating the end of the current cycle? What you think matters probably doesn't.

• Position: UB Voices

One of the most--if not the most--commonly asked questions in real estate and business is when will this cycle come to an end? The question is usually followed by a nauseatingly common analogy involving baseball innings. Still, the question is a legitimate one. Though the end of a cycle cannot be precisely pinpointed, it is possible to understand the nature of cycles and various factors that influence them. Real estate professionals and the business community as a whole would be well advised to take these insights into account.

The first thing to understand about real estate cycles is that they are driven by the business cycle (or the growth and contraction of the broader economy). In this sense, they are virtually one and the same. Everything from world equity values to real estate pricing and rents (across all property types) are driven by the business cycle.

Using employment growth as the primary measure of a cycle's lifespan, the last three recoveries and expansions have lasted just under eight years. Although the aftermath of the Great Recession left many without the "feel good" factor of previous recoveries and expansions, the economy has been growing for quite some time and the current cycle is aging.

The cycle which began in mid-2009 is currently approaching the eight-year mark. Does this mean the end of the current expansion is near? Not necessarily. Time alone is not a reliable predictor of when economic downturns occur. This begs the question, what will cause the next recession and when will it be?

News headlines often elicit pessimistic outlooks courtesy of whatever the dramatic news story of the day may be. Everything from natural disasters, wars, and lately elections, are examined for their potential to derail the U.S. and global economies. Although these events are important in many respects and indeed can be unnerving, exogenous factors have not affected the last several economic cycles. In fact, if one were to examine U.S. economic cycles over the past several decades, it becomes clear that the events which garner the most media coverage (such as wars, trade deals, natural disasters, terrorist attacks and elections) do not have much impact on the duration of a cycle. This is not to say that geopolitical events aren't important and are without economic consequence. They are often important, but their effects tend to be more nuanced and impact economic dynamics over a longer period of time, (see corresponding geopolitics...