Reading the Market Cycles
I am sure most property investors are well aware of the fact that the property market goes in cycles. Finance people tend to talk 7 years, but they are also aware that 7 years is a generalisation but the reality is more like somewhere between 7 – 10 years.
The boom and bust of the cycles changes the property market on the way through and there will be times to buy, times to hold and times to sell. The changes in the property cycle do have four stages as it goes through so let’s look at those.
If you visualize a bell-shaped curve and look at the different property cycles they will go as follows:
Coming up the left-hand side is the Seller’s market, with demand rising to a peak before the curve. It is now a time to hold property or to buy and sell depending on profit as the upward prices will start to slow, but at this stage properties are still moving quite fast.
As the curve goes over the top the market has slowed and neither buyer nor seller knows which way the market is going to go so sales slow and prices don’t move.
Over the top of the curve it now becomes a Buyer’s Market. Prices will start to fall and rentals will also fall. This will continue down the side of the curve before finally levelling out.
At the levelling out stage is when buyers should re-enter the market with a view to selling as the curve once again starts to rise.
These strategies are what many active investors use in the real estate market, those that wish to be in the buy and sell mould. Others who are not so active may stay in the buy and hold cycle.
New investors often wonder how a property investor can accumulate 20 or more properties (even over 100 in some cases) and this is done through the Sellers cycle when property prices are increasing at ever growing rates, up to 10% or more is often recorded. They then use the equity to purchase again.
Filed Under: Investment Strategies
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