You may be familiar with the concept that the property market moves in a cycle – prices rise, fall, stabilise and then rise once more. While the names of each stage differs slightly depending on who you talk to, it is agreed that the property cycle is made up of four key phases.
THE FOUR KEY PHASES OF THE PROPERTY MARKET
The value stage: Prices are flat, leading many people to believe it’s a good time to buy.
The growth phase: Prices begin to rise, slowly at first, before picking up pace.
The peak: This marks the top of the market. Prices will have increased very rapidly – as much as 20 per cent year on year – but will have reached the highest point of the cycle.
The correction: Prices moderate. People often equate a correction with a crash, but sometimes a correction is simply a long, slow period where prices stagnate.
Together, the whole cycle generally takes about seven to 10 years, and ideally one full cycle will see the price of property double. The factors that contribute to one phase will directly lead to the next phase developing. After a period of stability, people will regain confidence in the market and start buying and investing, which leads to price growth. As prices grow, more and more people become eager to buy, which quickens the pace of price rises.
Eventually, affordability constraints will lead to prices peaking, before undergoing a correction to bring prices back from their heights.
Once prices hit this trough, a period of some stability ensues, and the cycle begins over again.
The phases, though, don’t transition purely of their own accord. There are a vast number of external factors that play a role.
WHAT DO YOU NEED TO CONSIDER WHEN MAKING A DECISION TO SELL?
- The willingness of mortgage lenders to write new loans.
- How much you can borrow to fund your next purchase.
- Broader economic outlook and unemployment rates.
- Local infrastructure projects.
- The rate of property price growth or declines.
- Vacancy rates for investment properties.
- Whether there are available properties that suit your needs.
Additionally, property cycles can be much more localised than most people recognise. For example, it is unusual for every Australian capital city to be in the same stage of the cycle simultaneously, as each market operates independently of the others.
Within each city, each suburb can be subject to its own property cycle. One particular area may experience rapid growth thanks to a new shopping centre being constructed while the next suburb sees little to no growth. Of you’d like to learn more about the current property market cycle speak with one of our experienced agents.