Understanding the property market cycle
The property market cycle is a well-established way of predicting how a housing market will act in the coming years. Prices will rise, fall and stabilise in a rhythm that is more predictable than you might think. If you’re considering investing in property, understanding the property market cycle is a useful way to predict trends or periods of high growth in a particular city, area of suburb of interest.
What is the property market cycle?
There are four stages of the property market cycle:
1. Value
Prices are flat, there is a little activity in the market
2. Growth
Prices begin to slowly rise, then with greater pace
3. Peak
After a rapid increase, house prices reach the top of the market
4. Correction
Prices stagnate or fall as the market is moderated
Generally, the property cycle will last from seven to 10 years. During that time, it’s not uncommon for the price of a property to double.
What influences the property market cycle?
There are a huge number of factors that can have an impact on the property market cycle. From large scale infrastructure investments and new transport links, to a surge in new businesses or amenities, to the price of similar properties in surrounding suburbs. There are dozens of factors to keep an eye on when predicting where an area might be in its cycle. Some key influencing factors include:
- Unemployment
Low unemployment in an area or city means that there are organisations, businesses and headquarters within commutable distance, which makes the area a much more attractive place to buy a home or investment property.
- Population growth
If there are more people arriving in a city, it follows that they will need a place to live. Often, property supply is slow to keep up with demand, which means that property prices will rise as the competition for a home increases.
- Funding environment
If banks or mortgage lenders are freely lending, the likelihood is that the property market will thrive. If lenders become more cautious and start imposing strict lending criteria, it’s common to find that certain types of properties in certain areas will slow.
- Infrastructure investment
Transport, schools, amenities and other investments in an area can make prices soar. It’s can mean that the growth stage of the property market cycle is activated, so it pays to understand where the government are planning to spend their infrastructure dollars.
Things to remember
The property market cycle is useful, but it’s not everything. While the property market cycle offers a dependable rhythm, it’s important to remember that there are variables across suburbs, markets and areas. Because there are so many factors that affect the market, buyers shouldn’t rely solely on the property market cycle when making an investment decision.
The right timing also depends on you. Other factors such as your finances, how long you’d like to hold your investment, how much you have to spend, and the kind of return you’re looking for will all affect your purchase. Of course, timing makes a difference in property investment (after all, no-one wants to purchase a property at the peak of a boom) but you should also make sure that it’s the right moment for you.
To learn more about the property market cycle, discover which areas are entering their growth phase, and discuss your personal financial goals, book a free consultation with one of our property experts. Learn more about our free consultations
