The Property Cycle Part 1 - How to tell what’s really going on...

by Claire Wilson on Mon May 2022
The Property Cycle Part 1 - How to tell what’s really going on...

The Property Cycle appears to be simple and predictable however, the property market itself is complex and unpredictable. Understanding the four stages of the property cycle and their indicators means you can better plan for the future.

Boom. Slowdown. Slump. Recovery.

These are the four key phases you need to know to understand the Property Cycle. Over the past 40 to 50 years on average, New Zealand properties have doubled in value every ten years. This hasn’t happened at a steady rate over each ten year period, instead we’ve seen many ups and downs to reach an increase.

It’s not only important to pick the right time to invest but to understand where we are in the cycle. The only way to do this is by better understanding what traits help identify the phase we’re in and how to prepare to buy when the time is right for you.

Property ClockProperty Clock

Over the past ten years we have experienced large price increases and these are now coming to an end – is it now time to consolidate and wait for another surge or will there still be some bargains on offer for 2022?

Some of the first signs the market is entering the slowdown phase include flat property values, some falling below recent highs, and the media starting to talk about the potential for property prices to drop.

Average yields decrease, rents stabilise, it becomes irrational for property investors to buy or own at low yields and we see an increase in interest rates. These are all signs a bust or slump is on its way.

We also look for signs in the economy. Currently exports out of New Zealand are slow thanks to the worldwide pandemic. We are experiencing shipping delays, cashflow decreases for investors and yields decreasing – all of which impacts in the ability to pay off debt.

Another sign of a Slowdown is a drop in consumption – people spend less, travel less, there’s not as much money moving through the market and we see a flattening out.

People decide to wait and see, and when the media (including economists and property experts) report on the potential doom and gloom of an upcoming bust this only extends the flattening out period.

A large portion of New Zealand investment is in the property market which is closely tied to the economy. When the economy slows we see job losses and business confidence drop. A lot of business owners are property buyers and when they ease up on buying it affects everything else – they hire less people, offer less promotions, having an overall effect on salaried workers and therefore money spent.

When the flattening phase really sets in we also see political unrest spiral – we are currently experiencing a flat zone in New Zealand and as a result Labour’s popularity is beginning to fall due in part to economic pressure and property conditions.

National Property Values

Graph courtesy of Core Logic NZ

Don’t be disheartened! Despite all this, now is an opportunistic time to get all your ducks in a row. Prepare for the Bust phase that comes next and think long term investment – it only takes one or two awesome strategic property investments to transform your wealth. 

Next time, we’ll take you through the doom, the gloom and the bust phase of the Property Cycle.

We love talking property and are happy to share our experience and knowledge wherever we can be helpful. We welcome you to contact us for a free chat anytime. 

Claire Wilson

Claire Wilson

An active investor with her husband Hamish, Claire loves to inspire & inform others, all whilst juggling three little boys and living her mantra to eat well and travel lots.