Have you heard of the 18 year property cycle? We are all aware that the stock market operates in cycles and the property market is no different. But would it surprise you to know that the timing of the cycles is different? Today we delve more into the 18 year property cycle and how it affects you as a property investor.
What do we mean by the 18-year property cycle?
The 18-year property cycle refers to a pattern in property prices going back 200 years.
The cycle begins with the recovery phase from the previous cycle. Prices creep up as confidence returns to the market over a period of 5-7 years. There is then a mid-cycle slowdown, where the market stagnates or even dips slightly. However, once people get accustomed to the new normal, they start to invest again. This imbalance in the demand vs the supply causes an increase in prices, typically for a period of 7-8 years.
Eventually, it is apparent that the growth cannot be sustained forever, and expectations of a crash coupled with the abundant availability of liquidity (money) causes a crash. After a 2-4 year recession phase, the cycle begins again.
This cycle has repeated itself time and time again, and understanding where we are in the cycle allows us to make smart decisions about our investment strategy.
Our most recent crash was in 2008, which places us at the tail-end of the mid-cycle wobble, just about to enter a period of aggressive growth.
What causes the mid-cycle wobble?
If prices have been slowly growing for several years, why does growth tend to drop off or reverse direction?
The logic behind this is very human – essentially, people get nervous. The previous crash is still at the back of people’s minds and when prices start to accelerate, people start worrying that they’re about to be hit with another crash.
How likely is a boom?
If we see a boom over the next few years, it will fit perfectly with our understanding of the 18-year property cycle. The boom is typically driven by an economic stimulus, as people use the availability of credit to seize spending and investment opportunities. In this scenario, governments across the world have ploughed money into their economies to avoid an all-out recession. As a result, people’s attitudes have switched from risk-averse to risk-loving, and with growth on horizon, more and more people spend and invest.
Of course, a boom isn’t always guaranteed. Over the last 200 years, there have been 2 periods where the market has not followed the cycle, crashing when it should have boomed: World Wars 1 & 2. These unprecedented events turned the world upside-down for a whole generation, and the wholesale destruction of infrastructure made it hard for war-torn countries to recover quickly.
What does this mean for you?
The first signs of a boom are all around us with most places already benefiting from increasing property prices. There’s more money in the economy than there has been in a decade. The UK government has pumped billions of pounds into the economy, and borrowing has never been cheaper, with the Bank of England’s base rate at 0.1%.
Property is a tangible and inflation-proof asset that offers financial stability and security to its owners. A big boom is just around the corner, which makes this the best time in the next decade to begin your investment journey.
Don’t know how to go about it? Our end-to-end, hands-free service makes it easy for busy professional and business owners to build a long-term, high-yielding property portfolio. Take a look at our investment model today to understand how we can help you make the most of the next decade.
If you want to find out more about the 18 year property cycle and how we can help you navigate it, register for our next Property Investment Masterclass here