Understanding Property Cycles and Market Trends

To truly become a successful property investor, it is essential to understand the property cycle and market trends. The property cycle refers to the pattern of rising and falling property prices that repeat themselves over 18 years. It is extremely likely that if you are reading this then you have got a memory of at least one property market crash, and therefore you have seen the direct results of this cycle, or at least part of it. The cycle was first observed by an economist, Fred Harrison, who not only found that the property market appeared to be cyclical over 18 years, but that it could be broken into 4 stages. Fred looked at 100's of years' worth of data, and he mapped the cycle back over a period of 300 years, concluding that you can see it following this pattern time and time again.

It is divided into four distinct stages:

1. Recovery - This is when the property market is recovering from a downturn and prices start to rise slowly. You can see the signs of this phase in your own town or city, look for building work, look for developers and large house builders putting up blocks of apartments, and new housing estates. With new estates come more people, this in turn brings more consumer spending, pushing prices up.

2. Expansion - This is when property prices start to rise at a faster pace due to strong demand from buyers and limited supply. Confidence in the market returns, the media and banks give reason to buy, positive headlines and offering easy borrowing.

3. Peak - This is the point when property prices reach their highest point and start to slow down as supply catches up with demand.

4. Contraction - This is when property prices start to fall due to oversupply and decreasing demand.

It's important to remember that a crash in the property market is inevitable, and at some point, prices will fall. However, understanding the property cycle can help you decide when to buy or sell your property.

When the market is in a recovery or expansion stage, it's a good time to buy, as prices are relatively low, and you can make a significant profit when prices rise. On the other hand, when the market reaches its peak or contraction stage, it's better to hold or even sell your property to avoid losing money.

It's also important not to panic and sell your property when prices are falling. Selling at the wrong point in the cycle could lead to significant financial losses. Instead, prepare for these times by putting funds aside to weather the storm.

One crucial thing to remember is to avoid getting carried away by market hype and media reports, do you remember 2006 and what the headlines were saying, instead of warning you that you have two years before a potential crash in the market, they were hyping up 100% and 110% mortgages! Always do your research and understand the trends before making any investment decisions. It's thankfully fast becoming a distant memory, but the Covid outbreak in 2020 bought headlines stating predictions of a crash, but in fact prices rose 20% over the next couple of years.

Finally, always be ready to sell when everyone else is buying and buy when everyone else is selling. This approach will help you make the most of your investment and achieve long-term success.

A point to remember that is both logical, and mundane, but important: The market and property prices are cyclical, and so prices will surge and then decrease, dropping back, in some cases below their original point before the surge, this is nothing to be overly worried about, as long as you remember this when investing, and ensure you are covered for it.