How to use the “Property Cycle Clock” when advising your clients.

Everyone has heard of property cycles, typically early investors think of them as boom followed by bust, however the cycle is actually better seen in terms of the rate of property growth speeding up or slowing down.

What is a property market cycle?

A property market cycle describes the movement of house prices through stages. Historically, these cycles are observed to start with a period of rising values, followed by a lull period in which prices stagnate or even decline, before starting to increase again.

What factors influence the property cycle?

he main factors driving the property cycle are:

1.    Interest rates and the availability of funds to buy property is a major driver of property demand.
When money is cheaper (interest rates are low) this is positive for property markets. Clearly, the availability of finance (or lack of it) has been a  major influencer over the last few years

2.    The Economy – business confidence, employment prospects, jobs growth, and wages growth all create demand.

3.    The availability of supply of property to meet this demand.

4.    Consumer confidence

5.    Demographics – in particular, household formation (again affecting demand.)

The government via the RBA or APRA seek to have some control over the property market via managing the availability of credit – either the cost of money such as interest-rate or the availability of money such as tightening the screws to cool a market that is seen as getting out of step with the Governments broader socioeconomic objectives.

However last year lockdowns forced by Coronavirus threw the rule book out the window and have fractured markets more than we have seen in known history. Across the country house and land demand has outstripped supply and price growth has been at some of the highest levels seen. In contrast most capital cities have seen an overhang in apartments and downward pressure on prices.

Where are we headed?

It seems now all the pieces of the property puzzle are starting to fall into place for almost all property markets around Australia, both capital cities and regional locations, are setting themselves up for strong price growth in 2021 and 2022.

However there are a number of risk factors looming for the market with low wage growth, barriers for migration and a general bumpy outlook for economic recovery. In addition the market is predicting interest rate rises on the horizon and APRA is implementing further controls to tighten credit for investors and lower borrowing capacity.

What does this mean for your clients?

Whilst the Property Clock is a useful visualisation it is an oversimplification of what is a complicated market with many sub markets and influences.

For your clients it’s important to take a long-term view of the economy and our property markets, however they also need to allow for uncertainty and surprises by only holding quality assets diversified over a number of property markets.

Property is a long term game, there is an old expression “What matters is not timing the market it's time in the market” and with a volatile market this is never more relevant.

Meesh Hall
Project Sales Advisor - Investorist
Phone: 0413 681 174 | Email: meesh.hall@investorist.com
Website: www.investorist.com