Property Cycle

A Property cycle can be seen as a logical sequence of recurrent events reflected in demographic, economic and emotional factors that affect the supply and demand for property subsequently influencing the property market.

The property cycle generally recognises 4 recurring phases the Boom, Contraction, slump and recovery.

Boom

• Rents rise to levels which place significant financial pressure on
  
  tenants
• The time it take for a property to sell after being listed for sale reduces
  
  markedly
•  Property prices rise
• Yields fall as prices rise proportionally more than rents rise
• There are few mortgagee/forced sales
• Property finance is easy to obtain and finance companies release a number
  
  of new lending products making borrowing easier
• People borrow against their increased house values and spend this money on
  
  consumer items (Tv’s, Boats, Holidays etc)
• Increase number of property seminars competing for investor dollars
• Property is a hot topic in the media. Initially there is much speculation about how price growth will continue, but later in the Boom the media turns its attention to the reduced affordability of property
• There is a lot of discussion about how this boom will never end i.e “its different this time”  and expectations that there will be no slump phase

Contraction

The Contraction phase typically start a long time before most people realise the property market is in the slump phase, this is because of the delay between the shifting trends of “key drivers” and the impacts that are evident in the property market itself. An interesting note is that contrast to popular belief property values
do not necessarily fall during a slump, values may simply stall for a lengthy period.

• Yeilds fall further
• Increased vacancies of rental properties
• Interest rates begin to rise
• Oversupply in the market
• Demand reduces

Slump

• Reduced cash flow for investors (Although not always)
• Property price growth stagnates and/or property values falls
• The length of time to sell a property increases markedly
• Increase number of mortgagee/forced sales
• Property finance is more difficult to obtain
• There is much “doom and gloom” about property values being too high in the
  
  media
• Many property investors experience lower cash flow and sell down their property portfolios to some degree, or completely

Recovery

• Increased rents and cashflows
• The length of time to sell a property reduces
• Property prices begin to increase
• Much confusion in the medis reigns about whether recent property value growth is sustainable
• Many protential property purchasers delay buying because they evidenced value falls or a slow market in the proceeding slump

The Property clock below depicts the different stimulus or “Key Drivers” effecting the market. As you can see the green represents when finance is easy to obtain and red is when it becomes more difficult due to harsher lending policies and difficult valuations.



Find out more about property cycle here http://australianpropertyagency.com.au/nras