
December 16, 2022
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.
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.
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.