Newspaper article Fraser Coast Chronicle (Hervey Bay, Australia)

Understanding the Property Cycle

Newspaper article Fraser Coast Chronicle (Hervey Bay, Australia)

Understanding the Property Cycle

Article excerpt

Understanding where we are in the property cycle - and understanding the phases of the property cycle - is an important part of building your real estate knowledge.

Historically, the accepted wisdom suggests that one revolution of the property cycle can take between seven and 10 years. Most agents operate on the basis that someone who has owned their home for at least seven years is potentially considering a move, whether that sale is to upgrade or downsize their property.

Everybody wants to buy property at that moment when the market is at the bottom and about to recover and we all want to sell at the peak of the boom, when prices are at their greatest.

Of course, the reality is that people buy and sell property when it's right for their personal circumstances. And the downside of selling at the top of the market is that most of us are likely buying our next property at the top of the market.

This is why the prudent advice is to buy property for the long term. Generally speaking, if you wait long enough, property will grow in value.

Depending on your source, the property cycle can have either three or four phases. The REIQ's version of the property clock identifies four parts to the cycle: Midnight to 3 o'clock is falling, 3 - 6 o'clock is stabilising, 6 - 9 o'clock is recovering and 9 - 12 o'clock is rising. We have added two small sections at 3 o'clock and 9 o'clock that class markets as steady. See illustration below.

A market is classified according to the last four quarters of activity:

Falling: Prices are following a downward trend, days-on-market statistics are lengthening and vendor discounting is increasing. This is the time when properties are taking longer to sell, prices are generally below expectation and the difference between the first-listed sale price and the final sale price is getting bigger. In a rental market, conditions are weak and tend to favour tenants.

Stabilising: This is the period when the bottom of the market has been met. …

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