Understanding the Property Cycle

One of the things that both home buyers and property investors need to fully understand when buying a property is the Property Cycle.

The Property Cycle has a major influence on the property you buy and is a key indicator of where you should be buying when, especially if you are a property investor looking to buy an investment property that will experience a high level of growth.

To help our buyers get a better understanding of the property cycle, our Senior Property Consultant, Alex Goldhagen has created a short video, “Understanding the Property Cycle”, and talks about the important of the different property cycles whilst walks you through each stage and the best and worst times to buy.

Watch the video, “Understanding the Property Cycle” now.

When it comes to buying property, both investors and home buyers need to understand how the property cycle works. When you get the timing right, have patience and buy in the correct phase, you could end up making hundreds of thousands of dollars in a very short space of time.

What is the Property Cycle?

The first thing you need to realise is that every major capital city within Australia has its own property cycle and every capital city will be at a different stage. There are five main stages which are:

  1. Bottom of the market

  2. Rising Market

  3. Boom

  4. Peak of the market

  5. Downturn

Ideally the best time to buy property is at the bottom of the cycle, whilst you should sell at the peak of the cycle. In other words, buy low, sell high.

It can often be stressful and confusing to know when you should buy a property and this is not helped from the hype in the media as it tends to lead people to buy and sell property at the worst times. During the boom period, we tend to dind people buying property, fuelled on by the fear of missing out and being left behind, whilst others don't buy at the bottom of the cycle and miss out on high level of growth because they believe that this is the time when the property market is not performing.

We have even seen some people sell their property just before the recovery phase; thereby missing out on tens if not hundreds of thousands of dollars.

Generally, the pattern you tend to  see is two to three years of strong solid growth, followed by seven to eight years of slow to moderate growth. It is important to remember that property doesn't necessarily double every ten years, but the longer you hold a property, the better growth you are likely to see.

So how can you tell which stage a property market is at? Here is a quick overview:

Bottom of the market: The best time to buy

  • Rental yields are strong 5.5%+
  • Confidence in the market is quite low
  • Rental vacancy rates will also be low
  • There is little new construction

Rising Market: This is the second best time to buy

  • At this stage, the market has already shifted and we see prices start to rise
  • Talk of a property bubble
  • Rental returns start to flatten out to about 5%
  • More buyers are entering the market

Boom: This is the last opportunity to buy in the property cycle

  • Rental vacancies start to come back to the acceptable 2-3% range
  • Media hype about the property market is high
  • There’s high confidence levels
  • Lots of construction occurring

Peak of the market: At this stage it makes little sense to buy, unless there is a good bargain to be had.

  • Prices hit their highest point
  • Last minute buyers coming into the market trying to find a good deal
  • Rental yields are now less than 5%
  • Very high confidence
  • Risk of oversupply in the market

Downturn: This is where the market starts to recover

  • Affordability crisis with many people priced out of the market
  • With high prices and the inability to buy we see rental yields start to increase
  • This period can last as long as 8 years

The Downturn phase is often thought of as a bar period, but it actually gives the market some time to recover. Both salaries and rentals need to increase, and these both happen very slowly until we get back to that 5-6% rental yield.


Always refer to past property cycles

By referring to past property cycles before you buy a property, this will help make your money work as hard as possible for you. You should also try to buy in a market that is rising. You should also try to avoid doing what everyone else is doing, as typically they are the ones who are buying at the wrong time.

It is important to remember that if you are planning on holding the property for the long term (which is the ideal scenario), there is really no bad time to buy. Typically speaking it is not timing of the market but time in the market.

Having said this, if you have the funds available to buy a property today then you should be buying a property as soon as you are able and look to hold on to it for the longer term. However, if possible you should take the investor approach and try to buy your property in a rising market to benefit from the greatest amount of growth.


What do property investors do?

A great strategy that many good property investors adopt is to have as much exposure as possible to multiple markets running on different cycles, rather than concentrating your property portfolio in one location. It is important to diversify into many different major capital cities to spread your risk, so if one market was to take a tumble, not all your properties will be at risk and you can rely on the others to pick up the slack. As the old age saying goes, “don’t place all your eggs in one basket”.

To learn more about the Property Cycle and where the best areas are to buy property right now, speak to a Property Consultant at iBuyNew. Call us today on 1300 123 463.

Published on 1st of January 2021 by Michelle Leftwich
Michelle Leftwich
Michelle Leftwich


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