Property cycles have been tracked for over 100 years and the research shows a consistent pattern of property prices moving in cycles.
History tells us that small cycles generally occur every 9 years and major cycles every 18-20 years, but they are never the same.
One factor that triggers the peaks and troughs in the property cycle is interest rates. It is important to note that all previous slumps have been the result of a significant increase in interest rates.
But each cycle will vary depending on the economic conditions and social circumstances at the time.
In Australia we have many local markets, all at different stages of the property cycle due to local conditions.
In the Manningham area, the recovery in housing prices started in the second half of 2013.
Both Manningham and the Melbourne property markets have enjoyed a positive 2014.
Although house price growth is likely to moderate in 2015 the early market indications are positive, underpinned by:
• historically low interest rates
• strong population growth
• a sound banking system with low rates of mortgage arrears across Australia
• a big appetite for capital growth by property investors
• a low Australian Dollar makes it more attractive for expats to re-enter the market
• a preference by overseas investors to place their money in Australia’s largest capital cities, providing them with a safe haven for their money
Also the low Australian dollar will encourage even more overseas investors to invest their money in Australian property. Some are buying development sites while others are investing in new and off the plan high-rise apartments in our major capital cities.
At the heart of the property market cycles is this: the capitalization of imputed rent of land. Every parcel or tract of land has a potential annual rental value, determined by supply and demand. However, what policymakers have failed to grasp (to the benefit of speculators) is that a very low effective rate of taxation on the rental value of locations enables owners of land to withhold supply for future gain as prices are increasing. The result in many instances is a net reduction in the amount of land brought to the market as prices are rising. The supply curve for land actually leans to the left as a result. As noted in this brief video, the stress this places on "housing" affordability and on business profit margins peaks at the18-20 year point, causing a crash and multi-year recession. The depth and duration of the recessionary downturn will depend on what actions are taken by government. In the meantime, those who acquired property or acquired land at the peak of the land market are likely to experience difficulty generating income to service debt. Residential foreclosures follow. Business failures follow.
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