Which is a common characteristic of rising property prices?

When property prices are on the rise, a common characteristic is the trend toward lower capitalization (cap) rates. This phenomenon occurs because cap rates are inversely related to property values; as property values increase, the cap rates decrease. A lower cap rate indicates that investors are generally willing to accept a lower return on investment, which can be attributed to the perceived stability and attractiveness of the asset. Investors usually view rising prices as a sign of a strong market, leading to increased demand and further compressing cap rates.

In contrast, higher cap rates would suggest that investors expect higher returns to compensate for perceived risks or declining property values. Stable prices would not be indicative of rising property prices, as stability implies no significant upward or downward movement. Similarly, increased availability of affordable housing contradicts the notion of rising property prices, which generally correlates with a tightening supply or increased demand rather than an expansion of affordable options.