Property market cycles ride an unpredictable bike path

Just when you think you have it all figured out, we are here to tell you that property market cycles are a myth.

Experts will tell you that Australian property markets will follow a trend. They like to explain how to follow the market cycle that travels through peaks and troughs, around like a clock, and can help predict the expected performance of a property based on when it was purchased within the market cycle.

Although property markets do follow a certain rhythm, there are some suburbs that have proven to dispel expectations and make us rethink how we analyse property markets.

The expected property market cycle trend:

Boom

We see rapid price increases, high demand, lack of supply to meet demand, lots of media attention, buyers develop FOMO (Fear of Missing Out) and properties sell like hotcakes, auctions seem to go crazy, days on market is very low (time to sell a property).

Downturn

We see prices stop rising, demand for property will fall, the media will be all property market doom and gloom, less properties for sale at auction, days on market increases and buyers have a bit more time to make decisions.

Stabilisation

You will see the property markets start to calm down, prices level off, buyers can shop around a little bit as FOMO disappears.

Recovery

When the market hits recovery, you will see property prices start increasing, buyer interest increases and the hype around property prices is amped up.

Exceptions to the cyclical rules

Not every market, however, will follow this cycle and while it is a handy framework there are a few exceptions, with some suburbs throwing curve balls at investors who follow the cycle closely.

Byron Bay, New South Wales, has been a suburb that goes against the grain when it comes to market cycles.

Traditionally a sleepy beachside town, it was hit with the celebrity effect when Chris Hemsworth decided to relocate his family, as well as many other celebrities being spotted barefoot around town.

The popularity of Byron Bay skyrocketed as a result, with lifestyle seekers looking for their own piece of paradise boosting the property market prices and accelerating capital growth.
Toorak, Victoria, is another town that has shown a lot of resilience against market trends, thanks to its blue-chip status.

With a limited supply of properties available for wealthy buyers, we often see Toorak moving independently from surrounding suburbs and wider markets.

Newcastle, NSW, which was once an industrial town, has transformed into a vibrant, lively cultural centre. It steadily grew through Sydney’s ups and downs, due to significant urban renewal projects, a thriving university and cultural gentrification.

The proximity to Sydney and the town’s relative affordability in comparison, has made Newcastle quite a resilient location with constant demand.

Why are there exceptions to the cycle trends?

Not all markets will follow this framework constantly because you cannot take a one-size-fits-all approach to property.

Each suburb and area will have its own characteristics and unique population and features, and we need to break it down further into blocks or streets.

Australia is very large, so there is a lot of geographical diversity between states/territories, suburbs and sometimes even streets.

Some properties are waterfront, while others are the perfect tree change and some properties will be on a busy highway.

Economic factors are another reason some areas will not follow the purported property cycle.

Government spending on infrastructure may alter the demand of an area, as well as new factories (or major factory closures) and job opportunities. Areas assigned to be business hubs will change the demand in an area against the cycle trends.

Natural disasters have also shown us how they alter our expectation of the property market. Covid lockdowns changed the demand for rural properties that had more space. Bushfires, floods and other natural disasters will also suddenly disrupt the real estate market cycles.

How can we now predict property performance?

Firstly, it’s important to recognise that there will always be unpredictability in property markets. If there wasn’t this uncertainty, property investors would have a really easy time making money.

It is important to analyse each market as a micro market taking into consideration its unique characteristics and upcoming infrastructure projects that might shift its place within the property market cycle.

It is important to not buy into a location once everyone is talking about it, because it is likely you have already missed the boat.

Rather, it is better to go against the grain and seek opportunities so that you can be in the market first, which will require some thinking outside the box but will reap greater benefits in return.