Are We Headed For A Property Market Crash?
Written by: Paul McFadden, Executive Contributor
Executive Contributors at Brainz Magazine are handpicked and invited to contribute because of their knowledge and valuable insight within their area of expertise.
It’s 2022 and the Property market is HOT! Property prices are continuing to rise. Inflation is currently at 9% and it is certain that it will go over 10%, with no indication of how much further it may rise. So, what does this mean for future property prices, and does it mean we’re headed for a property market crash? With properties continuing to go up in value, affordability becoming an increasing concern, and inflation and interest rates increasing, how can property investors navigate through all the chaos?
A big advantage would be to understand property cycles and where in the cycle we currently are. Having a good understanding of the different cycles property inevitably goes through will allow you to strategically navigate through each of the cycles, making the right investment decisions along the way.
The property market for most, is an extremely difficult market to navigate through, with so much uncertainty and countless opinions about what will or won’t happen with property prices. It’s no wonder many don’t get started for the fear of the unknown.
What I need you to understand is that if you run a property business right, your success will never be dependent on where we are in the cycle. If you know where we are in the cycle, you can choose the right strategies to use at that time and still make massive profits. Regardless of the market, you will be able to navigate and successfully invest and build your wealth.
So what is a Property Cycle?
It’s the rise and fall in prices of property over time. This cyclical nature means that there are periods of time when prices are low (a buyer’s market) and periods when prices are high (a seller’s market).
The economist Fred Harrison was one of the first people to identify the existence of the Property Cycle. He rose to fame for predicting the 2007-08 financial crash, as early as 1998. He traced it back for hundreds of years to conclude that the length of a full cycle averages out to 18 years, with each cycle divided into four distinct stages.
The 18-year property cycle suggests that following a crash, the property market experiences 3 to 4 years of recession. This is when banks and lenders withdraw from the market and an oversupply of properties hits the market, driving property prices down. Following this comes the recovery phase, where confidence slowly begins to return, and prices begin to creep up for 4 to 5 years.
After the recovery phase, there is a small market correction where prices pause, typically lasting 1 to 2 years and occurs as investors become nervous about the sustainability of growth. From then on, the boom phase kicks in. Government stimulus, housing incentives, easy access to money, low interest rates and low borrowing requirements all fuel demand, with supply failing to keep pace.
This results in a period of strong house prices and rental growth over 6 to 7 years. The subsequent peak and crash signal the start of the next cycle.
Where are we in the Property Cycle?
It’s clear that we are in the explosive phase of the cycle. The question we should be asking is, are we coming to an end, or do we still have a lot more growth to come?
If we go by Fred Harrison’s 18-year Property Cycle, then we still have a few more years of the explosive cycle to go, peaking in or around 2026.
Does that mean it can’t happen sooner? Fred Harrison claims evidence going back hundreds of years for the cycle’s duration averaging 18 years.
It’s best not getting caught up or dwell on the exact timing. Remember the length of the cycle and each of the phases it goes through is an AVERAGE, so it could easily be off by a few years in either direction. Don’t get caught up on the exact duration and have that create inaction. Just know that there is a predictable cycle of any duration and it’s much easier to see the stages progressing, even if you don’t know how many years have passed.
You can gauge where we are now and, therefore, what’s coming next by looking for the signals that we have discussed appearing during each phase.
It seems hard to believe that we may still have 3 or 4 more years of further growth at the moment but keep in mind that the main contributing factor to house prices going up or down is supply and demand.
If you’re considering waiting until the crash before investing in property, you’ll likely be waiting a long time and miss out on income and building wealth.
How do we invest in property now, given what the market conditions are?
Your success will never be dependent on where we are in the cycle. If you know where we are in the cycle, you can choose the right strategies to use at that time and still make massive profits. Regardless of the market, you will be able to navigate and successfully invest and build your wealth.
The best thing about the property? When the crash does inevitably happen, it doesn’t work like other investments such as cryptocurrency or stocks and shares. Property prices will not plummet overnight. We will see the prices gradually go down and will have plenty of time to adapt how we are investing.
Through our Property Protege mentoring programme, we teach the right strategies that work through each of the phases of the Property Cycle, as well as how to build and run a successful and profitable property business that will thrive through all challenges faced in the property market. If mentorship, support and getting the right knowledge are of interest to you, check out our Property Protege programme at PropertyProtege.com
Paul McFadden, Executive Contributor Brainz Magazine
Paul McFadden is a renowned and respected high-performance, property and business success coach, a keynote speaker on stages around the world alongside the likes of Robert Kiyosaki and Grant Cardone, and is also the best-selling author of several property investment books.
