The art of timing property market cycles

It is impossible to know exactly when a market is going to peak, just as it is to predict when it has hit the bottom of its cycle.

But there are signs to look for that can optimise the timing of a home or investment property sale or purchase.

To spot the start of a boom, it’s important to keep an eye on the following developments:

• a decrease in days on the market (how long a property has been advertised before it sells)
• an increase in attendance numbers at open homes
• auction clearance rates starting to rise (i.e. more properties are selling under the hammer).

The cycles move at different times in different cities and regions.

There are plenty of fantastic regional and coastal locations to buy in where capital growth is steady. These markets also tend to have better rental yields, which spells better cashflow.

Another way to mitigate risk is to find properties that can be improved. When value is added to a property, there is less reliance on what the cycle is doing, particularly in regional centres.

Sentiment, supply and demand

Identifying and reacting to market sentiment is a part of understanding the markets.

Some price increases are quite artificial. It’s amazing, for example, how much sentiment changes depending on the elected government and especially their policies on negative gearing or provision of grants, which can either entice or repel investors.

When the Reserve Bank decreased interest rates in 2020 trying to stimulate inflation, that kept house prices moving along and heated the markets up. When the property markets heat up, FOMO kicks in, as people start to worry about missing out and that there isn’t much stock left on the market. This artificially raises prices.

The problem is exacerbated by the reluctance of vendors to list their properties, because with prices starting to increase, they think they’ll get more by selling ‘next year’.

This needs to be closely monitored because listings can increase at the drop of a hat if either market sentiment or household situations change.

It’s usually wise to invest in areas with a lower supply of properties coupled with high demand, because that’s what’s really going to push property values up.

It’s harder to buy a property where there’s high demand and not much supply but this is where good negotiation skills and good connections with local real estate agents are important.

Buying into a highly coveted area that has all the amenities and good infrastructure should prove to be a sound long-term investment.

Conversely, it is important to avoid a market that’s oversupplied, which is what was found with units in the Melbourne CBD, or townhouses and units in Brisbane from around 2015 onwards.

There are certain pockets in the Sydney apartment market that are oversupplied, with too many of them for sale at the same time. This puts downward pressure on both sales prices and rental demand.

But units are also presenting as an investment opportunity again around the country, as the rate of property price growth slows or even goes into reverse.

Boom-bust markets

People often think that when a market has been down for a while, property in that market will represent an investment opportunity because surely it will soon be on the way up. That’s not true of all markets, all the time, though.

From 2010 to 2020, two capital city markets in Australia—Perth and Darwin—experienced an overall decrease in property prices. That was because both are too reliant on the resources sector.

Mining towns that rely on only one sector are problematic. Sooner or later that industry will experience declines. Growth and high rental yields are compelling until a mine closes or and you lose it all.

Investing in places that have diverse and plentiful industries and economic drivers is crucial.

The Gold Coast has attracted many investors in the past few years but caution is also advised where the market fluctuates rapidly.

Driven by tourism, the Gold Coast was hit hard during the COVID-19 pandemic when the tourism industry was shut down. Hosting the Olympics coming to Queensland in 2032 is sure to help many of these Queensland markets that rely on tourism, though, and has the potential to deliver sustained growth and once again become a reliable and stable area in which to invest.