Property Cycles and You

By Thursday May 24th, 2018 Blog No Comments

property cyclesWash. Rinse. Repeat.

Many people apply this methodology to hair, but there’s a similar pattern that exists within the property market – and understanding it can be incredibly empowering.

Have you heard of property cycles?

If you haven’t, you’ve at least experienced them. Think a steady (sometimes surging) period of property growth, an inevitable downturn and then the stabilising period where a ‘new normal’ (average house prices) is set. Property cycles are not often experienced nationally, in fact they are usually localised.

For example, rarely will every Australian capital city be in the same stage of the cycle at the same time. Each market is influenced by unique factors, which impact price and demand. Sometimes even within cities, different suburbs will experience their own cycles.

In any case, this phenomenon is commonly referred to as Boom. Slump. Recovery.

Many factors influence the property cycle, including social, economic and political trends, along with population growth and property supply. Despite fluctuations, history has shown that property cycles are quite predictable and come with a reliable set of markers during each stage.

Here’s a breakdown:

Boom (growth phase) – rental yields increase, restrictions on property lending loosen, properties sell faster, house prices start rising slowly and eventually begin to peak, increased media attention and urgency around property affordability is also common

Slump (the value phase) – the market starts to slow and eventually stagnates, property prices can fall but not always, rental vacancies increase, properties take longer to sell, investor cash flow is reduced and stricter lending conditions often come into play

Recovery (correction phase) – property prices begin to show positive growth again, rents and cash flow increase for investors, properties begin to sell quicker and cautious optimism from market observers typically ensues

We’ve documented the overall property cycle and its nuances extensively. A full cycle is, on average, made up of around 18.5 years, including:

  • First upswing / return to growth – 7 growth years
  • Mid Cycle Slowdown – around 1 year typically of sideways or slightly negative movement
  • Second upswing / The boom – 7 growth years
  • Peak, crash, recovery – 4 years negative growth

These property cycles have been tracked since the 1700s and aside from interruption from very significant global events, typically world wars, they have been remarkably consistent.

How to use the property cycle to your advantage

This is the part you’ve probably been waiting for. We know the property cycle is real and we know that harnessing it is a strategically smart way to maximise property returns and rental yield. But how do you determine where various properties are in their cycle?

Many clients come to us asking this question and fortunately, we have an entire service based around providing expertise in this area.

Our research begins by considering market cycle timing using in depth analysis of cycles.

We recommend areas that are close to the bottom of the cycle and which are poised for an upswing or which have just commenced their upswing. In this way investors get an immediate equity lift in their portfolio from the market itself.

In addition to market timing insight, we review broader national and international themes and trends that will benefit particular geographical areas of Australia. Our data comes from overseas government research, Australian federal, state and local government departments, leading economists and analysts along with research from international and Australian banks and property research firms.

The result is an informed purchase for you, and one which has the greatest chance of reaching your short and/or long-term investment ambitions.

Get serious about learning more about property cycles

If this blog has whet your appetite on the topic of property cycles, we encourage you to explore our services and learn more about how we can use our expertise to seriously support your property-purchasing efforts.

Get in touch with our team and benefit from our research-driven insight and high-level strategic advice.

 

property cycles

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