the whole cycle generally takes around seven to 10 years, and ideally one full cycle will see the price of property double.
While the names of each phase differ slightly depending on who you talk to, it is agreed that the property cycle is made up of four key phases:
The value stage: Prices are flat, leading many people to believe it’s a good time to buy.
The growth phase: Prices begin to rise, slowly at first before picking up the pace.
The peak: Marks the top of the market. Prices will have increased very rapidly (as much as 20 per cent year on year), but have reached the highest point of the cycle.
The correction: Price moderation. People often equate a correction to a price crash, but sometimes a correction is simply a long, slow period where prices stagnate.
In essence, the factors that contribute to one phase will directly lead to the next phase developing.
After a period of stability, people will regain confidence in the market and start investing, which leads to price growth. As prices grow, more and more people pile in, which quickens the pace of price rises. Eventually, affordability constraints will lead to prices peaking, before undergoing a correction to bring prices back from their dizzying heights. Once they hit bottom, a period of some stability ensues, and the cycle begins over again.
The phases, though, don’t transition purely of their own accord. There are a vast number of external factors that play a role in driving change.
Additionally, property cycles are much more localised than most people recognise. For example, it is highly unusual for every Australian capital city to be in the same stage of the cycle simultaneously, as each market operates independently of the others.
Yet even that is quite a broad overview. Each town and suburb can be subject to its own property cycle. One particular area may experience rapid growth thanks to a new shopping centre being constructed while the next suburb sees little to no growth.
Most of us are familiar with the concept that the property market moves in a cycle – one almost as regular as clockwork. Prices rise, fall, stabilise and then rise once more.
Some would-be investors spend considerable time trying to pick the exact moment they should buy in order to maximise their profits when they eventually come to sell. The trouble is that the property cycle has far less impact on buyers than many believe.