The property market is not static. Whilst values ultimately increase over time, the market’s ebbs and flows result in a cycle – the property cycle. This cycle consists of four phases and market behaviour differs during each of these phases of the property cycle.
So, as an investor, it’s important to understand each phase to help you secure the ideal investment property, on time and budget.
In Australia, the property market moves through a rough 7-year cycle. Let’s take a closer at each one of its phases.
As the name suggests, the boom phase is when we see a rapid increase in property prices and a new generation of investors enter the marketplace. The boom phase tends to be the shortest of the property cycle phases. When investors start recognising the increase in rental returns and property prices, they begin jumping on board. Because of this, properties sell above market value as buyers battle it out for ownership.
As the boom goes on, the market becomes saturated with properties by existing homeowners and property developers. As a result, the boom begins to come to an end due to oversupply. And so, starts the next phase.
What goes up must come down right? The boom phase is usually followed by a slump that we refer to as the downturn phase. This phase, caused by the high level of market activity in the boom, can lead to an increase in vacancy rates and the consequent decrease of rental prices.
During this phase, properties tend to not increase in value and may even see a price decrease. It’s common to see homebuyers who may have overcommitted in the boom phase now struggling with their repayments, especially as interest rates rise.
This phase of the property cycle often results in people panic selling at deflated prices to relieve themselves of the financial burden. This phase can last a few years, with the length of the preceding boom having some effect on its duration. The higher the rise, the harder the fall!
But it’s not all doom and gloom. Better days are ahead.
Of the four phases of the property cycle, this one is the most over-looked by investors. The stabilisation phase marks the beginning of the market moving on. Investors warily venture back out into the marketplace and we see a concurrence between buyers and sellers.
Property prices generally flatline during this phase, but slight increases may be observed.
A decrease in vacancy rates and the gradual rise of rental prices signifies the beginning of the upturn phase. Property values increase, usually starting in inner or coastal suburbs.
As this phase progresses, we see affordable property and favourable returns on the rise, with more investment opportunities appearing. As a result, the market is ushered towards the boom phase, thus recommencing the cycle.
At Bolt & Hunter, we understand that sourcing the ideal investment property without expert industry knowledge and connections can be challenging. But as a buyer’s agency, this is where we step in.
Contact us to see how we can empower and educate you, guiding you towards opportunities you never even knew existed.