Predicting The Property Cycle In 2014

2014 Property Cycle

Trying to predict the best time to invest in property is what every investor strives for.

The holy grail is to invest at the bottom of the market and sell at the top, but predicting these exact points are very difficult.

Like any market property has booms & busts where there are times when property values are increasing and rental yields reducing & vice versa.

property clockThis is often thought of or looked at like a ‘Property Clock’

You might envision a giant clock and when the hand hits twelve, prices are at their peak.

When the hand is at six, prices are at their lowest and it’s when everyone would like to rush out and buy a property and the start of the next boom.

A bit like the madness of stock market fever or digging for gold in the goldrush…  But the reality of predicting these points in time and getting the perfect point in the cycle is very different

Predicting A Property Boom and Bust

A properties boom and bust cycle is often influenced by outside factors.

If it was simply left alone, it would be driven by supply and demand and reach a natural level.

But the reality is that many outside influences (government stimulus or even a single universal event) are often introduced, which can set a chain of events in action causing dramatic swings of confidence (and therefore demand) in the market.

An example of this was the 1988 Housing Act that saw the introduction of specialist buy-to-let financing.  This had the knock on effect in the late 1990s of a boom as people were able to buy up properties due to access to the new ‘buy-to-let’ finance that was available

Likewise, the 2007 financial markets crash saw a bust period in almost all aspects of the economy and property was heavily affected.

the property clock and investing in 2014This event was influenced by a range of financial and debt problems, including ‘toxic mortgages’ which saw finance for properties available for up to 125% of their value.

When mortgage finance started to dry up, the market changed, people became unable to easily find the money to buy and demand and supply was reversed, with more sellers in the market than buyers.

This rise and fall in market prices and conditions is always going to happen, boom and bust is almost guaranteed… it can happen in any market… the key is making sure if you get caught against the tide, that you manage the downside so you are protected.

Property in 2014 is no different.

Sure you can attempt to cash in now and get out quick if you feel it’s in a period of growth or an artificial bubble.

But whether you hold for 6 months, 2 years or 10 years, picking the right time to sell will likely be as much as an educated guess as it is a well executed plan.

This is why I have found it better to instead of trying to predict the top and bottom of an ever changing market, the focus should be on understanding the fundamentals. This way you can make your property investment work in any part of the Cycle/Property Clock.

the changing housing market in 2014So how do these property fundamentals work?

And how does this influence your property strategy and whether you should consider a buy to let investment or a refurbish & flip style deal?

Golden Rules

Unless you are a competent psychic who knows when the markets are going to change, it is best to choose a property investment that can work in any market, whether prices are going up, down or staying stagnant.

Sure property flip deals are working great right now in most areas, but if your target market is the homeowner or first time buyer, it only takes another outside influence like the Mortgage MMR to rock your strategy.

Sticking to 7 golden rules or a property due-diligence checklist, is just one way to manage your risk.

predicting the property market and housing bubbleYou can then define your strategy based on your individual goals and these 7 key points will help you look at any property deal to make it work in any market.

It will also give you a baseline to compare property deals to, like for like, not apples to oranges, which will help you pick the right one’s when you have a couple of options to look at

On the clock

So while the Property Clock can be glimpsed at when you are looking at buying your next deal, trying to predict which part of the property cycle your on in 2014 shouldn’t be the deciding factor to be used to go for the deal.

Warren Buffet (who knows a fair bit about investing) has a famous saying…

“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

This is something that can certainly be applied to buying properties, especially when your looking to build a property portfolio, and should stand you in good stead when deciding your future property purchases.

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