Back to basics: What is a real estate “cycle”?

I am not going to claim to be Nostradamus when it comes to predicting the market perfectly, the first house I brought over 10 years ago, I sold a few years later for a grand loss of $36,000 (I am sure that wasn’t a chapter in the real estate investing 101 handbook haha.) 

But I did learn a huge amount from that whole process.  I brought my first house around the same month I qualified to sell real estate, so I was fairly green.  But having a genuine interest in property, selling hundreds of houses over 10 years in real estate and is using real estate as an investment strategy personally has given me a lot more knowledge then I had back then.  I will be talking more from a residential point of view.

Above is a graph showing the way the Wellington market has moved in the last 25 years (yellow line) the blue line is Auckland for comparison (because hey everyone wants to know what the Auckland market is doing according to the media right?).  Common-sense would say that Auckland has well come to the end of its current bullish cycle.  Wellington set sail on the upwards trend a lot later then Auckland and may have a little bit to run.

Through the graph above we seem to have intersected 3 cycles, it is generally assumed a property cycle is between 7-10 years.   Through these cycles the increase in price is generally not linear as was well depicted by Wellington during the 2008-9 through to the 2014-15 period where prices stagnated somewhat and are now making up for lost time.

A lot of people seem to expect that the property cycles are going to be far more up and down then depicted by the above graph.  Generally, a cycle is an upwards trend followed by a flattening out period or slight drop as opposed to a large drop, but rules are always made to be broken!  There are factors that can cause larger up and down fluctuations like coastal property that has a holiday home population to it.

This is brief, but hopefully this gives you a basic understanding of a real estate “cycle”.  If you would like to chat about the market or be given a no cost or obligation appraisal feel free to call.  Always happy to chat or pop by.

As an aside, I have said this before and I will say it again, if you want to try and set yourself up for older age via investing in property the worst thing you can do is be out of the market.  I watched a video that quoted studies done by JP Morgan and Schwab saying that if you miss the top 10 trading days in 20 years in the stock market your return will nearly be halved!!  The property market doesn’t tend to be as aggressive but if you aren’t in you can’t win.  Also, if you are buying a home to live in I would argue does it even really matter that much at which stage the cycle is at?  If it is your family home you are purchasing, and you can afford the mortgage repayments with comfort then buy it, live in it, and let the market do its thing.  You need to make the right decision, but try not to dither like I see some do and end up pay potentially hundreds of thousands more for a home as they overthink things and end up chasing a rising market.

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Country kid turned city inhabitanat. I enjoy working out, living in the vibrant city of Wellington, helping people with property, and spending time with my beautiful wife.