Understanding the Property Market Cycle

When it comes to property investment, understanding the monster that is the property market cycle can give you an extra edge.

The property market cycle consists of four stages as prices rise, fall, stabilise and eventually rise again. However, understanding the Perth property market cycle isn’t the be-all end-all of purchasing a Perth investment property. The saying ‘it’s time in the market not timing the market’ rings true. Here are the key points you should know about the property market cycle.

The four stages of the property market cycle

The property market cycle consists of four stages: the value, growth, peak and correction stages. In Australia, it tends to last for seven to ten years. During the value or ‘opportunity’ stage, property prices are flat, which results in people thinking it’s an optimal time to buy. If you already own a Perth investment property, it’s a good idea to hold onto it as this isn’t the best time to sell.

Next is the growth phase, where property prices begin to exponentially increase as investors see potential in particular areas. If property owners sell during this stage, they are likely to make more money than if they sold during the opportunity phase, but less than if they sell during the peak phase.

This leads to the peak phase, which is typically the most chaotic stage as property investors tend to ambush the market in an attempt to capitalise on the increasing value. This can cause property prices to further increase due to the sheer amount of people competing for fewer properties.

Last is the correction stage where prices moderate. People often mistake this stage for a price crash, however it may just be that it’s taking a long time for prices to stabilise. Property owners may dread this phase as values are likely to decrease; similarly, if they purchased property during the peak phase, it is likely to be valued less than what they paid for it.

What affects the property market cycle?

In addition to buyer behaviour, the property market cycle is influenced by a number of factors, such as unemployment, population growth and exchange rates. Low unemployment rates in particular areas can make an area more attractive to individuals, families and investors, as job prospects imply a sense of security for individuals and families and strong rental potential for property investors. Similarly, areas with high unemployment rates are unappealing to individuals, families and investors as there will appear to be less potential for growth in value.

Population growth is another factor that can influence the property market cycle. New developments such as shopping centres or schools in a particular area can drive population growth. If populations outgrow the supply of property, supply and demand will come into play and cause values to rise with demand.

Another influencing factor is exchange rates. If the Australian dollar is low against currencies such as the US dollar, this means properties are cheaper and more appealing to foreign investors and resident expats, motivating overseas buyers to invest in property (though they would need to consider a few other conditions that apply for overseas investors).

Receive expert advice from Rentwest

It is evident that the property market cycle is complex. It’s important to realise that property market cycles are extremely localised; different cities and often even different suburbs will be at different stages in the cycle, as every property market works independently.

At Rentwest, we’re here to help you make sense of the Perth property market cycle. Our team of expert property managers can give you the advice and insight needed to know how to use the Perth property market cycle to your best advantage. For more information about our property management solutions, contact us on (08) 9314 9888 or email us at rentals@rentwest.com.au.

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