Podcast Summary
18-year property cycle continues to guide investors despite COVID-19 challenges: Despite COVID-19, the 18-year property cycle remains a useful tool for investors. However, government measures like mortgage payment holidays and eviction bans add complexity, with extensions adding to market uncertainty.
The 18-year property cycle, a long-standing tool for property investors, continues to be relevant despite the unprecedented impact of COVID-19. However, the current situation has led to some adjustments, such as the extension of mortgage payment holidays and the temporary ban on evictions, which have added complexity to the property market. These measures, initially set to expire in June, have been extended for another three months due to the ongoing economic uncertainty. While the future remains uncertain, the property cycle remains a valuable tool for investors looking to make informed decisions. Stay tuned for more insights and updates on the property market in tomorrow's episode.
Understanding the 18 year property cycle: The 18 year property cycle is a pattern in real estate prices consisting of four phases: growth, aggressive growth, wobble, and crash. Awareness of this cycle can help guide decisions in the property market.
The 18 year property cycle is a pattern in real estate prices that has recurred for approximately 200 years. This cycle consists of four phases: a slow and steady growth phase following a crash, a second phase of rapid aggressive growth fueled by overconfidence, and a mid-cycle wobble where prices may stagnate or even decline briefly before the aggressive growth phase. Understanding this cycle can help guide future decisions regarding the property market, as it provides insight into where the economy may be heading. Last week, we discussed two potential scenarios for the current economic climate. Regardless of which scenario plays out, being aware of the 18 year property cycle can help investors and homebuyers make informed decisions. If you're new to the concept of the property cycle, we recommend checking out our free course and other relevant podcasts for a more in-depth understanding.
Possible disruptions to the property cycle: The 18-year property cycle may not always hold true due to unforeseen events like wars or pandemics, making it crucial to stay informed and adapt to changing circumstances.
The economic future could unfold in various ways - an economic meltdown, an economic boom, or a combination of both. Based on current analysis, a boom followed by a bust seems the most likely scenario. However, there are exceptions to the 18-year property cycle, such as during world wars, which could disrupt the cycle entirely. The ongoing COVID-19 pandemic could be seen as a war-like event, potentially halting the property cycle and requiring a new starting point. If this scenario holds true, using the 18-year property cycle as a guide for decision-making may no longer be effective. It's important to stay informed and adapt to changing circumstances.
Economic climate aligns with property cycle: Economic stimulus causes property boom, mid-cycle dips due to investor psychology, recent downturn a prime example, next 12 months expected to begin boom
The current economic climate aligns nicely with the 18-year property cycle, which suggests we're approaching a boom phase. This boom is not a random event, but rather caused by economic stimulus such as cheap credits and money being pumped into the system. The mid-cycle dip, on the other hand, is a result of investor psychology. People get nervous about rising prices and may cause a drop in prices before the growth phase. The recent economic downturn due to the coronavirus pandemic serves as a prime example of this phenomenon. Despite the current dip, it's expected that the beginning of a boom will be seen within the next 12 months.
Economic boom and bust cycle: Despite stimulus, economic boom may lead to a more severe bust, leaving governments powerless to intervene
The current economic situation, despite its unprecedented stimulus, is likely to follow the 18-year property cycle pattern of boom and bust. This means that after a substantial economic boom, there will be a severe economic bust. The tools to create the boom exist, but due to human psychology and the already-used economic stimulus measures, the bust is expected to be even more severe, potentially leaving governments powerless to intervene. This cycle has played out throughout history, and the current situation may result in an even more exaggerated version due to the unprecedented levels of stimulus. It's important to be aware of this cycle and its potential consequences.
Understanding the limitations of the 18-year property cycle: The 18-year property cycle is a useful tool, but it's important to consider the unique circumstances of each economic situation and not assume events will unfold in a predictable way.
While the economic cycle template of an 18-year property cycle can be a useful tool for investors, it's important to remember that it's not a perfect science and should be challenged rather than blindly followed. The current economic situation may seem to fit the template, but past experiences have shown that unexpected events can disrupt the cycle and cause wobbles. For instance, the Brexit situation could have been a mid-cycle wobble, but it's also possible that it wasn't the sole cause of the current economic uncertainty. It's crucial to consider the nuances of each cycle and not assume that events will unfold in a neat and predictable way. Additionally, past cycles may not provide a complete picture when looked at in detail, and it's essential to be aware of the unique circumstances of each economic situation. Overall, while the 18-year property cycle can be a valuable guide, it's important to approach it with a critical and open-minded perspective.
Understanding the real estate market cycle: The real estate market cycle is not predetermined but shaped by various triggers and events. Uncertainty and nervousness during the mid-cycle wobble can take different forms and intensities. The recent Brexit event might not have been the true mid-cycle wobble, and the current stimulus levels could lead to a historic boom and bust.
The current real estate market cycle, which is part of an 18-year cycle, is not predetermined but shaped by various triggers and events. The mid-cycle wobble, which causes uncertainty and nervousness about growth, can take different forms and intensities. The recent Brexit event might not have been the true mid-cycle wobble, and if the current stimulus levels are unprecedented, the boom phase and subsequent bust could also be historic. It's essential to remember that this cycle is not a recent invention but a concept that has been documented for decades, and the data points come from centuries. While current market movements and decisions may feel significant, they will likely be just a point in history in the future. It's crucial to approach the analysis of market cycles with an open mind and a thorough understanding of the underlying factors.
Understanding the property cycle: Every property cycle is unique, but recognizing its stages can help investors make informed decisions. Be critical and form your own opinion based on the current economic climate.
The property cycle is a useful guide for real estate investments, but it's important to remember that every cycle is unique and the timings and specific events may vary. The 18-year average length of the cycle is not an exact science, and it's essential to be critical and form your own opinion. The current economic climate, including low interest rates and the impact of the coronavirus pandemic, presents a significant test for the property cycle, and it's too early to determine if it will break down or continue as expected. However, understanding the underlying reasons for the sequence of events in the property cycle can help investors make informed decisions. The Hub Extra is an essential resource for gaining additional insights and knowledge to make the most of your real estate investments.
Learn about the 18-year property cycle with Ray Dalio and Property Hub University: To make informed real estate investment decisions, understand the 18-year property cycle, learn its mechanics, and gain knowledge from experts like Ray Dalio and Property Hub University.
Understanding the 18-year property cycle is crucial for making informed real estate investment decisions, but it's not enough to simply know about it. To truly make the most of this knowledge, one must delve deeper and educate oneself on the mechanics behind it. A great starting point is by watching Ray Dalio's video "How the Economic Machine Works" and listening to the trilogy of podcasts on the 18-year property cycle, available for free at Property Hub University. These resources will provide a solid foundation for making informed decisions regarding real estate investments. It's essential not to base all decisions solely on the property cycle until one has a thorough understanding of it. Staying informed and educated is key to making the best possible investment choices. And while economics is an important aspect of investments, focusing on what one can control, such as doing deals, is also crucial. Tune in to the next week's podcast for more on that topic.
