Neighborhood Life Cycles

Most new products that are brought to market experience what is commonly referred to as a
“life cycle”.  Similarly, neighborhoods also experience a life cycle.

These cycles include four basic phases:  growth, stability, decline and renewal.  Occasionally these four stages can happen over a relatively brief period of time, but it usually takes decades.  

During the growth period the area experiences high demand and public acceptance.  The growth period is when rents rise, property values increase, job growth is strong and an area reflects prosperity.

The stability phase is a period of time when a neighborhood stays constant or is in equilibrium.  This is when the market is most balanced with an equal amount of buyers and sellers.  These neighborhoods usually have a high rate of owner occupancy and pride of ownership.  

The period of decline comes about when deferred maintenance is obvious, there are fewer owner occupied properties, crime increases, and both demand and prices decrease.  Commonly these areas have lots of deferred maintenance, or even blight. As a neighborhood goes through decline it is considered undesirable by most potential buyers.  The demand for property in a declining neighborhood is usually very low.

Renewal takes place as properties are improved, more become owner occupied, and both demand and prices increase.  During the renewal phase gentrification takes place.  There are major increases in remodeling and home improvements by new residents who want to improve their neighborhood and increase property values. 

With soaring prices of Bay Area real estate, buyers are becoming resourceful and considering some neighborhoods  that were once undesirable.  There are several areas where this is happening on the Peninsula.

One great example of this is the Fair Oaks area in Redwood City.  For the last three years the 94063 zip code in Redwood City has had one of the highest percentage increases in prices in the nation.  Obviously people who purchased just prior to the renewal phase will see dramatic returns on their investment; and it appears that this area will continue to see rapid appreciation.

When purchasing a property, it obviously is important to consider how well the neighborhood is doing and what phase it is in.  Be aware of neighborhood trends when you consider buying.  Every neighborhood fits somewhere in, or between, one of these four stages. 

This article was published in the San Francisco Examiner.

Articles are written by Eric Ruxton and Larry Aikins, owners of Terrace Realty, Inc. and Terrace Associates, Inc. in Redwood City. Terrace has been in business more than 55 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.