Planting a tree...
Can you predict a property market crash?
Supposedly you can…
5, 10, or even 15 years out
This is great…. You can wait for the crash, then buy property at a discount and bobs your
uncle
According to Fred Harrison who wrote (in 2005) Boom and Bust: House Prices, Banking
and the Depression of 2010 - you can
He called the early 90s crash, and the 2008 crash years before they happened
All because house prices follow a cycle, known at the ‘18 year property cycle’
And this isn’t just opinion — it’s based on historical data going back hundreds of years
The cycle isn’t exact to the month or day, but it’s a strong guide. If we understand it, surely
we can use it to make better property decisions?
After the dissolution of the monasteries in 1530s (I should have listened more in school…)
Land started to be traded freely
And we saw the start of the property market in the uk as we know it today
By the 1600’s, there is evidence of the first house prices booms, and crashes
Fred studied all of this, and has shown a repeatable 18 year cycle;
Phase 1 - years 1-7 - The recovery phase
Then, a ‘mid cycle dip’
Phase 2 -year 7-14 - The explosive phase
Years 12-14 are known as ‘the winners curse’
Phase 14-18 - The Recession
So where are we now? Let’s track it….
2008-2011/12 - recession phase
2012 - 2019 - recovery phase
2019 - 2026 explosive phase
Therefore, markets must be about to crash and now is the time to buy?
Sorted.
The data suggests otherwise….
Looking at inflation adjusted house prices, prices have been falling or flat since March
2022… almost 4 years ago
And you can hardly call real house price growth ‘explosive’ since then
Now, we have falling interest rates, house prices at record highs and increasing ‘availability
of credit’ in the form of more first time buyer mortgage options than ever
‘Availability of credit’ and an increase in it, being one of the indicators of a growth phase,
according to Fred
My opinion? Two fold;
Covid and ‘black swan’ events may have skewed the data, and Fred himself says it can be
shorter, 16 years for example, or longer - I think we have had a ‘silent’ recession, and
could now be entering 14 years of growth
Secondly? Who cares.
The 18 year cycle is fun to look at, but you should never use it to make your buying
decisions.
Buy for the long term, based on your goals, and you will do well. Never wait.
Even if you buy at the peak of the market (2007 for example), most house prices were back
to these levels from 2010 onwards
Spend 5 years waiting for a crash that never happens?
Lose 5 years of income, 5 years of inflation eating your debt, 5 years of growth, 5 years of
life.
When is the best time to plant a tree? 20 years ago.
The second best time? Now.
Thanks,
Callum