Do you believe in the 18-year real estate cycle?

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There is a lot of talk about the 18-year real estate cycle which is said to average at 14 years up and 4 years down. Many investors welcome this because if the cycle exists, the housing markets won’t crash until 14 years or more since the Global Financial Crisis.

This cycle predicts that the US and Australian markets will keep rising in price until at least 2022.

The US housing markets and those of the Western World crashed from 2000 to 2010 and 18 years before that, there was the recession in 1990 as well. This is where the theory of the 18 year real estate clock was derived. However, while this seems to be good news, the theory is likely a myth since housing prices in Australia did not crash in 1990 or 2008.

The aggregated Australian capital city annual house price changes show that the the 18 year clock has in fact, not occurred.

There was only one period when about 14 years of price rises were followed by four years of price drops and this was during the 1940s and 1950s postwar. People believing the 18 year real estate cycle myth shows that people do not learn from history.

The Australian market moves independently from overseas markets.

There are times when our market booms while overseas markets crash because people tend to move to larger cities at a time of economic recession, financial crisis or war. We also experience market booms during mining expansions, drought recovery and infrastructure projects. There could be market booms and falls in different parts of our country as well.

In the past fifty years, there were only three years when housing prices slightly dropped and quickly recovered. This is because of population growth in capital cities that cause an increasing demand for housing and a shortage of supply. It also depends on when housing finance is cheap and easy or rent increases when interest rates are high. These demand dynamics drive housing prices and rents.

For more information about property investment in Australia, contact a Specialist  to discuss your particular circumstances.

For more tips and advice from other industry experts, visit www.chan-naylor.com.au

 

Disclaimer

Source: Philip Anderson

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