Successful property investors need to predict the future. We don’t recommend crystal balls but something that has worked well since its inception is the 18 year property cycle. Investors are moving away from short gains with property into longer term projects. With this in mind let’s take a look at how the 18 year property cycle works.
The 18 Year Property Cycle
Fred Harrison described this property cycle in his book Boom Bust: House Prices, Banking and the Depression of 2010. He published this book in 2005 and predicted the market crash of 2008. He came up with the cycle by taking a look at property price movements over the last two centuries.
Harrison states that in every 18 year cycle there is a crash, a slow recovery period and then a correction of the market prior to a boom. As the last crash was in 2008 he predicts that the housing market will reach its peak in 2026. This is supported by UK house prices stalling recently.
How does this work Today?
There are many government initiatives in force at the moment in an attempt to control the UK property market now and in the future. Recently introduced schemes such as “Help To Buy” scheme as well as changes in stamp duty designed to make it easier for first time buyers to acquire their first property.
The real secret to the UK housing market is supply and demand. If there are too many properties on the market then prices fall and prices rise if the demand is higher. At the moment there is high demand in some areas of the UK and high supply in other areas.
How can this help you?
So according to the 18 year property cycle the next significant drop in house prices will occur in 2026. Whether this happens or not is up for debate. The most important thing is that property investors plan for longer term investments for greater reward.
Yes there will probably always be short term gains to be had somewhere. London has provided the opportunity for a number of these over the years. But this is always changing and it makes a lot more sense to take a longer term view.
If you purchased a property 20 to 30 years ago then it is highly likely that you will have seen a dramatic rise in its value. This is despite the market crash of 2008 and other factors. There are always going to be ups and downs with property investment but for the long term investor it still represents the possibility of a much higher return than other investment methods.
Opportunities exist throughout the Property Cycle
At each point of the 18 year property cycle there are opportunities for you to explore. This includes the crash period as well as the boom time. Considering where we are in the property cycle right now it is an excellent time to invest.
One stable area during boom or bust periods is the rental market. Usually the demand for rental properties is constant whatever the market is doing. So you could consider a long term buy to let strategy to provide the returns you are looking for.