You know what they say – “there’s no news like bad news”. The media is a sucker for an extreme story, even in the real estate world. In recent times, there has been talk of housing finance, residential constructions, the apartment market and economies that are well past their use-by date.
Understandably these things are often framed in a negative light, but you need to consider the bigger picture – let’s have a look at the property cycle.
When we talk about the property cycle, we mean the natural flow of a property market. This encompasses how prices may rise and fall in a systematic and cyclical pattern. Essentially, it’s all about how real markets work.
For those of you who may not be in tune with your local real estate market, this can be a daunting phenomenon to get to grips with. You might be asking about now, how long does a cycle actually last? Let’s have a look.
The property cycle’s length
It’s a common concept that the property cycle takes around seven to ten years to complete. When you dig a little deeper into the stages of a property cycle however, you’ll see that this is not always the case.
Experts anticipate that there are four stages in a property cycle; boom, bust, bottoming and recovery. These stages are mainly influenced by the reserve bank interest rates. They also tend to occur more frequently than conventionally thought; with companies having to revalue their assets in 2003-4, 2007 and again in 2010.
This is much more frequent than in subsequent years, with the IMF recording high points in Australia in 1974, 1981, 1989 and 1994 prior to this change in data trends.
It’s anticipated that this fast cycle will calm down within the next ten years, due to low inflation affecting prices. Property prices will not fall as much as they usually have at the lowest points of the cycle.
In this sense you could say that the property cycle does not therefore look like a series of peaks and troughs, but more like a series of plateaus and growth spurts. This is a fantastic thing for investors, but can make first-time buyers a little anxious, as it brings into question whether homes will be affordable or not.
How much growth can you expect in a cycle?
Between 1979 and 2014, an estimated growth in real estate was around 3.6% every year. This growth is what causes the peaks and troughs mentioned earlier; and shows how cycles will grow more than the last.
Baring this in mind you can expect between 10 and 30% growth per cycle. Don’t forget though, that there isn’t one single cycle for real estate across Australia. In fact, it tends to be regional.
Currently, Sydney and Melbourne are in a positively motivated cycle; one which is just past its highest point. Perth is moving on a negative trajectory. Factors such as construction levels and state law will have widespread impacts on growth and the change of property prices across a region.
Typically we see a property circle coming round full circle every five to eight years. It can be hard to pinpoint where a market may be in its cycle, but contacting your local estate agents should help you to solve any burning questions about the state of the market.