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The 18 year property cycle: Has Coronavirus broken it?

Last updated: 29th July 2020

The 18 year property cycle is a tool that’s been used by thousands of investors to make better investment decisions. But has COVID-19 destroyed the cycle?

We’re going to take a look into it.

What is the 18 year property cycle?

The 18 year property cycle is a pattern that goes back about 200 years and looks at property and land prices.

This pattern starts off with low prices, which slowly creep up before aggressively going up in a boom. Then they hit a peak, and after that they crash. And the whole cycle starts again.

The key event is in the boom followed by the crash. In the leadup to that there are two phases.

The first phase is one of slow and steady growth as people recover from the previous crash. They gain their confidence back and prices start to come back from their previous lows. After that comes the second stage of rapid aggressive growth, as that confidence turns into overconfidence.

Between these two phases there’s something called the mid-cycle wobble. This is where prices stop growing or even fall a little bit before that aggressive second half of growth.

This doesn’t just happen randomly: there is a reason why each of these phases happens when it does, in the way it does. If you take our free course you’ll get to understand that in a lot more detail.

The whole point of the 18 year property cycle is to be a guide to the future and allow you to make better decisions because you have an insight as to where the economy should be moving.

Why do we have a mid-cycle wobble?

Some people question why we end up having a mid-cycle wobble. Why would you suddenly have everything reversed before you go into the growth?

The reason is because people start to get a bit nervous. The memory of the last crash is still relatively fresh so after prices have been going up for a few years and start to accelerate, people get cautious.

The mid-cycle wobble is always going to happen, no matter what event may be occurring at the time. If prices have seen rapid growth then investors will naturally pull back and be cautious about where they put their money. They’ll more than likely wait for the market to dip slightly again before investing their money.

One video that we highly recommend you watch if you’re wanting to know more about economics and understand how the economic machine works, is this one from Ray Dalio.

What happens if there’s a crash?

The cycle essentially resets after a crash, which for us last happened in 2008 so we work forward from there. Which means we should now be coming out of that mid-cycle wobble and heading into the aggressive phase.

Looking at it at the minute you wouldn’t think that was going to happen. And if we were to get a crash instead of a boom, it wouldn’t be the first time that has happened. In fact it would be the third time.

When were the other two times? During both world wars. They were such major events that they shook up all the assumptions that the property cycle is based on so the rules of the cycle did not apply.

So if we were to suddenly enter a crash, the cycle would simply reset and start all over again once the dust has settled – so if you’d been following the cycle as your investment guide, it would have let you down.

What happens if there’s a boom?

An economic boom right now would tie in nicely to the 18 year property cycle. The timings are never exact, they could be a year or two out, so you could even say that this boom is a little late.

A boom doesn’t just randomly happen because the 18 year property cycle says it’s time for a boom. If you listen to these two podcast episodes (part one and part two), we really go into detail on this and one of the things you’ll learn is that this boom is caused by stimulus.

Essentially this cheap credit, which is money being pumped into our economic system. That’s something that is happening right now so it wouldn’t be crazy to say that we could be heading for a boom.

What happens now?

In the not too distant future you could expect to see the beginning of a boom. Realistically you should start to see the first signs of this in the next 12 months.

That may seem a bit hard to believe right now considering the current events playing out, but if 12 months ago we said we’d be tackling a worldwide pandemic, you wouldn’t have believed that either.

But the factors to support an economic boom are there. We’ve never had this much money pumped into the economy at any one time. This is the first time in over 100 years that this has happened.

In this podcast episode Rob & Rob predicted that we will see an economic boom and then a bust straight after, and the size of both will be substantial. Which plays out exactly along the timeline of the 18 year property cycle.

So hopefully this has given you a clearer idea of where we are in the cycle and where it’s going. There’s plenty of extra resources for you to get stuck into and further your knowledge on the 18 year property cycle.

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