Property cycle suggests market recovery in 2010

By Terry Ryder, 23rd March 2009

Property investors need to look beyond the current economic pessimism to historical data that confirms the cyclical nature of the property market and its capacity to bounce back, according to the latest edition of the Midwood Queensland Investment Report. 

Report author Bill Morris says looking long-term at the property cycle can help people understand the lows and highs of their house values and investments, giving them a clear understanding that recovery is inevitable within two years. 

Historical data over the past 40 years shows that cyclical peaks occur every seven years. Each cycle exhibits similar characteristics: 

• The time it takes after a peak for prices to begin to soften is generally one year.

• Prices fall as people realise the boom has ended (one to one-and-a-half years)

• Mortgagee and fire-sales predominate (one-and-a-half years)

• Housing supply begins to dry up (one-and-a-half years)• Prices begin to rise (one-and-a-half years) and finally climb when buyers realise that the market is moving. 

“The length of the property cycle is consistently about seven years in most western economies such as Australia, Canada, USA and the UK,” Morris says. “Such economies are characterised by cyclical over- and under-supply of housing and corrections are linked to consumer behaviour as well as financial regulation, which creates market inertia. 

“This inertia influences the time taken for each stage within the seven-year cycle.” 

Morris says the peak of the last boom in most parts of Queensland was in 2003, so the next uplift in the cycle is expected to be in 2010 or 2011. The scale of the boom will reflect the extent that median prices have fallen in the trough. He says the next uplift should be at least 20% and possibly 30% beginningin 2010 -11. 

“Investors and home-owners should be aware that there will be a quantum rise in land, house and apartment values within two to three years (rather than in gradual increments),” Morris says. “This is the way property values, historically, have increased. 

“Because property activity generally dictates the health of the economy, general economic improvement is also expected along with growth in values. “If we can weather the current storm, there will inevitably be sunshine on the other side as historical trends emerge with the next cyclical upturn.” 

ENDS