A property cycle is a sequence of recurrent events reflected in demographic, economic and emotional factors that affect supply and demand for property subsequently influencing the property market.
The first recorded pioneer of studying property cycles was Homer Hoyt (1895–1984) in 100 Years of Real Estate Values in Chicago (1933, reissued by Beard Books, 2000, ISBN 1-58798-016-9). It is widely recognised that property (along with other forms of investment) follows a predictable cycle. The property cycle has three recognised recurring phases of boom, slump, and recovery. The cycle follows a consistent pattern which can be accurately assessed by following the trends of a collective basket of Key Drivers (as outlined below).
The property cycle follows a predictable pattern. This pattern reveals three distinct phases being Boom followed by Slump followed by Recovery before the next Boom commences etc. The property cycle (unimpeded) will always follows this pattern so a Boom cannot precede another Boom without first experiencing a Slump followed by a Recovery before the next Boom can arrive. The property cycle must have a 'free market' where property ownership is attainable by citizens without, significant government restrictions on ownership or, any form of monopoly.
The following is an overview only of some of the elements evident in each of the property cycles phases.
When the Boom phase commences most people fail to believe the Boom will last and think it is just a short term anomaly because they do not have the context of understanding the property cycle.
What is observed during the Boom phase includes:
The Slump phase typically commences a lengthy period of time (often years) before most people realise the property market is in the Slump phase, as there is a delay between the shifting trends of the "Key Drivers" and the impacts that are evidenced in the property market. The slump is usually the longest phase in the property cycle. The longer and bigger the preceding Boom, the longer and harder the subsequent Slump is likely to be. In contrast to popular opinion property values do not necessarily fall during a Slump, values may simply stall for a lengthy period.
What is observed during the Slump phase includes:
The recovery phase is always much shorter than the slump or boom phases.
What is observed during the Recovery phase includes: