The property cycle is a term that industry commentators use to refer to the changes in Australian dwelling prices through the stages of value, growth, peak and correction. While the names of these stages may differ depending on whom you talk to, the most disputed aspect of this ideology relates to just how many years it takes to cycle through the whole process. It’s true that this fluctuates with each capital city, however, the general consensus is that it follows a 7 to 10 year timeframe. But why is it necessary to understand the Australian property cycle, what factors impact it, and where are we at now?
Understanding The Property Cycle
It doesn’t matter if you’ve just been handed the keys to your first property or are already boasting a considerable investment portfolio, understanding the property cycle is critical when trying to avoid overpaying and turning a healthy profit. To get a better grasp on just how you can use the different stages of the Australian property cycle to your advantage, let’s break down each phase individually.
The 4 Phases Of the Property Cycle
- The Value Stage: The value stage would be the bottom of the trough if we looked at this on a graph. The rental market is stagnant, construction is slow, and prices feel flat. The value stage is difficult to spot as it may feel like a recession. This stage is the best time to buy because you have a chance to secure a property before prices start to rise.
- The Growth Stage: As consumer confidence rises, property prices will begin to surge. Demand will start to outstrip supply, which further pushes prices skyward and hastens purchasing momentum. If you sell during this phase you’ll get more than if you sold during the recovery stage but less if you hold out till the peak.
- The Peak Stage: This is where the property market is at its most frenzied. The equilibrium between demand and supply has tipped over due to the competition for affordable properties and the inability of construction to keep up. No matter your motivation for buying, it’s important that you try and be objective about the property you intend to purchase so you don’t end up overpaying.
- The Correction Stage: Also know as the, “Oh no it’s going to crash” phase of the Australian property cycle. The correction stage is where you’ll see property prices begin to slow or stabilise, vacancy rates increase and return on investments decrease. Banks will most likely tighten their lending and the market will eventually make a full circle back to the value stage.
Where Are We At Now and What Factors are Affecting the Property Cycle?
Where you sit in the property cycle depends on where you’re located. Rarely do multiple cities positions on the property pendulum co-align. We’ve done a breakdown on various factors and where each city is currently experiencing. Simply sign up below for access to this information and more.
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