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It’s easy to get bogged down by the sheer weight of property cycle information available to buyers and investors. There are countless blogs, articles, podcasts and webinars devoted to the topic, but how much detail do you really need to understand? Let’s look at five important nuggets of advice.
1. The cycle keeps going around and around
Think of the property cycle as the rate at which price growth rises and falls. At different stages of the cycle, property values may increase, lower or stabilise, but overall the value of well-located properties typically keeps going up over time.
The swing in house prices is often described as going through the four phases of slowdown, slump, recovery and boom. During the downturn phases, property prices might move backwards, but if you resist the temptation to sell and instead hold your property for the long term, this slump will one day switch into recovery.
- Slowdown phase: little or no growth. Lending is tightened, making finance harder to obtain.
- Slump phase: prices slide, and auctions are poorly attended. Buyer’s market.
- Recovery phase: the beginning of an upward swing. Investors see potential and values rise.
Boom phase: rapid increase in home prices as buyers flood the market.
Get it right from the start with professional help.
2. There is no single property cycle in Australia
Don’t look at one city or neighbourhood and assume it has the same property cycle as the rest of Australia. Where one city, town or suburb might be experiencing moderate growth in property value, other areas might already have reached their peak and are now slowing with prices falling.
Although exchange rates and interest rates are key factors that influence the property cycle across Australia, there are also local variables at play. These include job security and unemployment, consumer confidence, population growth and supply and demand for property.
These differences give you the chance to be selective about where you buy. Rather than looking at national trends, zero in on the market trends of your preferred areas.
3. Don’t be too worried about property cycles if you’re an owner occupier
If you’re buying a home to live in rather than invest, property cycles should hold less importance. As an owner occupier, your financial situation and personal lifestyle requirements should trump all other concerns.
Did you Know?
An economist, Homer Hoyt, first identified the property cycle in 1933 when he published a book about the real estate market in Chicago.
4. It’s tough to predict the timing of property cycles
There’s much disagreement about the precise length of property cycles or the exact number of phases. Experts have great difficulty forecasting when one stage moves into the next, or what is the exact top or bottom of a cycle. There’s even disagreement about whether the cycle changes every seven to ten years, as is commonly suggested.
The takeaway from this uncertainty is that you shouldn’t rely on property cycles to inform your every decision. Know enough details to understand when it’s a good time to buy or sell, but don’t wait for confirmation of the exact time to jump. Research reputable sources like this CoreLogic price swings chart that shows Sydney swings for the past 20 years, but don’t wait for saturated media coverage reporting on booms or busts. Following the crowd is rarely the best strategy for successful property investment.
5. Put the cycles in perspective
No matter the timing of your property purchase, buying in the right location at the right price is still vital. If you try and time the markets but keep procrastinating because you’re not sure when to jump, you are merely delaying your success. It’s what you buy and how you add value that gives you the best chances of achieving long-term capital growth and wealth creation.
Speak to your trusted and experienced Yellow Brick Road advisor to help you get started on your property investment journey.