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The property cycle decoded: ride the waves to success | Property Insiders [Video] - featured image
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The property cycle decoded: ride the waves to success | Property Insiders [Video]

I’ve often said that you can’t be a good property investor until you’ve invested through a couple of cycles and understand how they work.

While clearly, each cycle is different, there are some similarities and having now invested for over five decades through eight property cycles, I can see patterns in the chaos that others see.

That’s why in today’s Property Insider chat, I’m going to ask Dr Andrew Wilson, chief economist of My Housing Market, to give us a primer on housing cycles.

I would also like his thoughts on the age-old conundrum of whether you should invest in properties or shares.

With the stock market being near record highs and a number of headwinds for the housing markets, there are commentators out there suggesting shares are a better investment.

But is this true?

Let’s find out….

Understanding the property cycle

Property prices have been climbing for over a year now, and while this has been good news for homeowners, it is heartbreaking for house hunters.

At the same time, there have been mixed messages in the media about what’s ahead.

Of course, there are always the Negative Nellies wanting to tell anyone who is prepared to listen to them the market is about to crash, but other more solid commentators are suggesting our property markets will keep growing at a slower pace.

Watch this week’s property insider chat with Dr Andrew Wilson, as he explains the nature of property cycles.

Price Cycles Dec Qtr 2023

Dr Wilson outlines his Wilson curve (see below) and how, despite all opposite pessimistic property predictions, we don’t really have property bubbles in Australia or significant property crashes.

Wilson Curve

Of course, rather than trying to time the market, investors should adopt a long-term perspective for their property investment.

There is no "best" time or "worst" time to buy property because property investment is a process, not just an event.

Attempting to time the market could lead to missed opportunities, and waiting for the "perfect" moment to invest may result in a more competitive market and potentially higher prices.

Having said that, watch as Dr Andrew Wilson and I discuss how the lagging Melbourne property market is currently offering a significant window of opportunity as property values are significantly below replacement cost, meaning many established properties purchased today have huge intrinsic equity.

Capital City House Price Cycle

In the medium term, our property markets will be underpinned by 3 factors:

  1. A significantly growing population
  2. Strong jobs creation
  3. Increasing the wealth of our nation.

I see the current market offering a window of opportunity for property investors with a long-term focus.

You see…we are at the early stages of a new property cycle, something that doesn’t happen very often.

Not that I suggest you try and time the market- this is just too difficult, and in truth, you’ve missed the bottom which occurred in early 2023.

But if the market hands you an opportunity like this, why not take advantage of it?

Taking advantage of the upturn stage of a new property has created significant wealth for investors in the past.

Moving forward, demand is going to outstrip supply for some time to come as we experience record levels of immigration at a time when we’re not building anywhere as many properties as we require.

At the same time, the cost of construction of delivering new dwellings will keep increasing not only because of supply chain issues and the lack of sufficient skilled labour but also because builders and developers will only commence new projects if they are financially viable and currently new projects will need to come on line at considerably higher prices than the current market price,

Of course, in due course, consumer sentiment will rebound when it becomes clear that inflation continues to fall and interest rates have peaked.

At that time pent-up demand will be released as greed (FOMO) overtakes fear (FOBE - Fear of buying early), as it always does as the property cycle moves on.

We are also going to be experiencing a prolonged period of strong rental growth - the rental crisis will only worsen further, with no end in sight.

Now I'm not suggesting taking advantage of tenants, what I'm suggesting is to recognise there is currently a problem (lack of rental accommodation) and provide a solution.

So rather than trying to hunt down a bargain, focus on buying an investment-grade property in an A-grade location because these types of properties are in short supply but are still selling for reasonably good prices… Plus they’ll hold their value far better in the long term.

While it might feel counterintuitive to buy at a time when there are so many mixed messages in the media, you can benefit from less competition, low consumer sentiment, minimal downside risk and minimal risk of oversupply.

Property vs Shares

In this week’s, Property Insider video, Dr Andrew Wilson compares the cumulative capital growth of properties to Australian shares based on the All Ordinaries Index.

Using a starting point of 2007, which was the peak of a mining boom and property boom, the chart below shows how poorly the Australian share market has performed compared to property markets.

Watch as Dr Wilson explains how this has played out and how the American share market has significantly performed the Australian share market.

Remember, if you have a superannuation fund, as most Australians do, it’s most likely heavily weighted in Australian shares.

House Prices Vs Sharemarket

Investment returns

We are at an interesting stage of the property cycle where both rental growth and capital growth are strong.

Usually, investors enjoy one or the other, but not both at the same time.

Watch this week’s Property Insiders chat as Dr. Wilson explains the returns investors have been achieving.

As you can see from the charts below, combining rental yield, and capital growth has yielded some amazing results over the last 12 months.

Total House Gross Annual Investment Returns

Total Unit Gross Annual Investment Returns

Another big day of auctions – but clearance rates fall

Weekend auction markets hosted another big day of auctions, but clearance rates were lower across the board as robust markets now test buyer depth.

Adelaide had the strongest auction clearance rate of 74.4%.

Auction clearance results for the other capitals were:- Melbourne - 65.2%; Brisbane -56.4%; Sydney - 71.3% and Canberra - 57.6%.

The national auction market reported a clearance rate of 65.0% at the weekend which was well below the 73.1% reported over the previous weekend – but marginally higher than the 63.4% recorded over the same weekend last year.

National auction numbers were predictably higher following the holiday impacted the previous weekend, with 2448 listings versus the previous weekend’s 1371, and still significantly above the 1815 listed over the same weekend last year.

Weekend auction markets have resumed at full pace this weekend, and with high listing numbers again likely next weekend prior to the Easter break, they are certain to continue to test markets.

Auction Results March 16

About Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media.
120 comments

Wages growth figures don’t include superannuation or the recent payroll tax changes in Victoria either. This means that the actual cost to business has had at least another 2% added to the payroll over the past few years with some more yet to com ...Read full version

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That is the nature of the game. Stagnant, stagnant, stagnant, stagnant (half the investment punters give up and sell), stagnant, stagnant (most of the rest do the same), stagnant, stagnant, explodes recouping all the losses and more so those who hung ...Read full version

1 reply

I just pulled out an old residential lease dated 2013 and found the rent on that was the same as it was in 2022/23. So in reality rents didnt go anywhere for 10 whole years. A little up, then and a lot of down during COVID19, and then up again. Its ...Read full version

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