Property market cycles are an important concept to consider when making property-related decisions, as they affect property prices and availability. There are three primary types of property market cycles: up, steady and down. When the property market is in an upcycle, property values rise; when it is in a steady cycle, property values remain at their current level; and when it is in a down cycle, property values decrease. Understanding the current property market cycle could help property owners make wise decisions related to the sale or purchase of their properties.
When it comes to property investment, it’s important to understand the property market cycle well. This will help you make informed decisions about your investments and understand the best time to buy and sell. In this blog post, we will discuss what the property market cycle is and how it can affect your investment strategy.
What is Property Market Cycle?
The property market cycle is a term often used to describe the cyclical nature of property values over time. It typically follows an “up and down” pattern, moving in sync with economic booms and busts. During periods of a property boom, prices rise quickly due to increased demand, while during a slowdown, they fall sharply as people become less willing to buy or sell. By understanding the property market cycle, investors can plan ahead and make strategic decisions about when to buy and when to sell their property investments.
The most common types of property cycles are short-term, medium-term, and long-term.
- Short-term cycles typically last 3–5 years and are associated with economic fluctuations. Usually, run over a period of months or years and involve minor fluctuations in property prices and economic metrics such as employment rate.
- Medium-term cycles can last 5–10 years and are linked to wider economic changes, such as property booms or recessions. Follows general trends in property prices and is closely linked to mortgage interest rates and consumer spending.
- Long-term cycles can last up to 25 years and are usually driven by demographic shifts. Property markets are driven by major economic trends over several decades and tend to see dramatic shifts in population numbers or geographic regions that drive sizeable changes in real estate values.
It’s important to note that while property cycles tend to follow a predictable pattern of highs and lows, they can be affected by external events such as natural disasters, pandemics, and other economic shocks. As such, it is important to keep an eye on the market and understand when buying or selling property investments could be advantageous.
The ‘four phases’ property market cycle:
- Boom phase, the property is in high demand, pushing up property values, transaction frequencies and rental rates;
- During the recession phase, property values may fall as people retreat from the property market.
- The recovery phase sees a gradual drop in property prices, enabling property transactions and rentals to gradually pick up again while buyers become more comfortable participating in the property market.
- Stabilization is when the property market returns to its normal level of activities with steady price and rental fluctuations over a period of time – though the timeline for each stage of this cycle can vary drastically depending on regional circumstances.
Although each property market will show some variation in regard to this cycle, understanding how it works can help property investors better manage their portfolios and anticipate future changes in price movements.
Two broad categories of Property market cycles
- Property price cycles are affected by trends in local property prices, economic factors such as inflation or interest rates, and supply and demand dynamics.
- Property turnover cycles are defined by the number of properties being bought and sold at a given point in time.
As these figures fluctuate with changing interest rates, sentiment and activity on the market, property turnover cycles have a direct impact on property values. Studying property market cycles is an important part of any property investment strategy.
Gaining an understanding of the property market cycle is a critical skill for any property investor. The property market cycle describes the rise and fall of property prices over time, with changeable levels of growth, stagnation and retraction in different locations and economies. Being able to correctly identify where we are currently on the property market cycle can help investors predict when to buy or sell the property and make more informed decisions about their investments. Knowing this information can also reduce risk, allowing them to realise greater returns on their property investments without taking on too much financial risk. Taking the time to gain a deep knowledge of this property market cycle is an essential step for succeeding as a property investor in today’s market. As always, every successful investor knows that having the right team of experienced professionals is key, as well as doing your own due diligence.
Ultimately, understanding the property market cycle will help you to make informed decisions about when to buy and sell your property investments. By being aware of the external factors influencing the cycle, you can maximise your chance of success in the long run.
Takeaway:
The property market cycle is essential for investors to understand as it helps them plan and make strategic decisions.
