It is important to have a basic comprehension of the property store cycle to be able to know when to capitalize on the separate property investment opportunities in each property cycle.
Newton's ideas of what goes up must come down accurately describes the property cycle in uncomplicated terms. The property cycle has ups (sellers market) and downs (buyers market) and slow growth at the turning points. These movements are in a sense predictable but the timing is not due to the unpredictable emotions of humans in the market.
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What drives the ups and downs of the property store cycle?
During sellers markets, developers (suppliers) are development money and constantly monitor their profit equation. As long as the equation yields a clear outcome and there are enough buyers, developers will continue to furnish new properties to the market.
Buyers ordinarily only buy at the end of the building period and there is no clear signal to developers when the buyers are going to dry up. At some stage developers will sit with unsold units and their profit equation will slowly turn negative and they will withdraw from the market. This is called an over furnish store and property prices will stabilize and sometimes fall in real terms. At this stage the property speculators will also withdraw from the store due to puny short term growth and profits in the market.
However population growth continues and the basic examine for affordable property will always have a clear trend.
The first sign of the property bottom is ordinarily in the rental market. As soon as rentals rise due to rental examine outstripping supply, the long term property investors slowly re enter the store due to the availability of business transaction properties (buyers market) and rising rentals. Speculators are attracted back to the store due to bottom prices and first time home buyers enter the store before rising prices go beyond their affordability levels.
Property prices start to rise and the property examine furnish pendulum swings again. Developers will again monitor their profit equitation and as soon as they have confirmation of enough buyers (demand), building (supply) of new units will commence. In the mean time, building costs have kept up with inflation and new units entering the store will be priced at the higher levels and existing units will see "catch up" growth. This phenomenon together with the continuous furnish of new property buyers (population growth) is the secret to guaranteed long term property growth.
As long as examine exceeds supply, property prices will rise and as long as furnish exceeds examine property prices will stabilize, but property prices rarely fall to their traditional levels purely due to continuous furnish (population growth) and inflation driving prices of new property supply.
What to do and what not to do in each property cycle?
-Do not buy at the top of the property cycle unless you buy from a motivated seeder at way below store value.
-Do not sell at the bottom of the property cycle, ever.
-Do revalue and responsibly refinance your property portfolio at the top of the property cycle.
-Do look for bargains way below store value at the bottom of the property cycle.
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