I have mentioned this book before but wanted to give a more in-depth review, particularly in light of the current market conditions. This book was written by a kiwi (New Zealander) but it is based on the works of Homer Hoyt - an economist, from Chicago, who first wrote these concepts of the property cycle back in 1933.[/SIZE]
I find it extremely interesting that so many of his findings are still relevant today. I try to read this book every few years – in attempt to better understand where we are in the property cycle. We also have a presentation (if we ever get the video back/edited, I will post it) based on this book.
One main concept of the book is that within the Property Cycle, there are 3 major phases – BOOM, SLUMP & RECOVERY. The author feels that the average cycle (full circle) is 10 years.
The author also repeatedly comments that the press is always late to the party! Here are some excerpts, from the book:
“At the end of the Boom phase, various commentators will extol the superior virtues of the particular boom and explain why it is so different from every other boom ever seen, suggesting that it should never end. Some economists predict that values will continue to increase for quite some time and the public are encouraged to buy now or miss out forever on the opportunity. Some media articles will revolve around the question of whether the boom is over or not”
Anyone remember hearing/reading stuff like this when the market was experiencing rapid growth?
“At the beginning of the Slump, property affordability has been detrimentally affected due to high values and financiers redefining their lending criteria. Values can continue to rise in some areas but at a slower rate then the recent boom. Higher end areas will begin to drop. Rents are stagnate or have started to decrease. A surplus of property and less active buyers will result in downward pressure on price. Some newspaper headlines will indicate property prices are too high and are overdue for a correction. Some experts will be naively (or with vested interests) singing the praises of property, reassuring investors that the market will soon rebound and investor will see similar growth in values that they experienced in the preceding few years.”
“During the middle of the Slump phase, property is clearly out of favor as an investment vehicle. It seems everyone has a horror story of losing wealth from property investments, or at least everyone knows someone else who has lost a lot of money in property investing. Most investors wish they had never started investing in property. Bad press will take center stage and the newspaper headlines will include the I told you so! position which is reinforced with stories of people who sell their homes at a significant loss.” (These articles are usually written by advisors who promote investment vehicles other than property). The lack of buyers moves values into a freefall and the realization that property is illiquid investment becomes painfully apparent. Available financing for property is difficult.”
“At the end of the Slump, the property market lacks direction. Investors generally underestimate property values and pay little heed to the sound fundamentals such as an increasing return on investment. While this is the optimum time to buy, most people avoid investing in property because it has proven to be such a bad investment in recent years as the property cycle as progressed through the slump phase. Property affordability has slowly been improving throughout the slump. There will be investor and media claims that this particular slump will never end and the boom days are gone forever. Any news relating to property will be bad. However, property investments will become noticeable by its absence from advisors’ recommendation. First-home buyers will begin to re-enter.”
Sound Familiar??
Finally….
“At the beginning of the Recovery phase, population and rental costs will start to rise rather quickly taking the market by surprise. There will seem to be a shortage of available property for rent. Affordability levels are high and property finance will become easier to obtain. First-home buyers will be very active in the market.
There is still low confidence in the property market as the slump is still fresh in most investors’ minds. The media headlines will indicate there is a shortage of rental property and therefore rents are increasing and there will be skepticism that the current pace of property value and rental growth can continue.”
I highly recommend this book to anyone who is considering re-entering the real estate market. It might not be the easiest or most exciting read to everyone but for those involved in real estate, it is fascinating.
I find it extremely interesting that so many of his findings are still relevant today. I try to read this book every few years – in attempt to better understand where we are in the property cycle. We also have a presentation (if we ever get the video back/edited, I will post it) based on this book.
One main concept of the book is that within the Property Cycle, there are 3 major phases – BOOM, SLUMP & RECOVERY. The author feels that the average cycle (full circle) is 10 years.
The author also repeatedly comments that the press is always late to the party! Here are some excerpts, from the book:
“At the end of the Boom phase, various commentators will extol the superior virtues of the particular boom and explain why it is so different from every other boom ever seen, suggesting that it should never end. Some economists predict that values will continue to increase for quite some time and the public are encouraged to buy now or miss out forever on the opportunity. Some media articles will revolve around the question of whether the boom is over or not”
Anyone remember hearing/reading stuff like this when the market was experiencing rapid growth?
“At the beginning of the Slump, property affordability has been detrimentally affected due to high values and financiers redefining their lending criteria. Values can continue to rise in some areas but at a slower rate then the recent boom. Higher end areas will begin to drop. Rents are stagnate or have started to decrease. A surplus of property and less active buyers will result in downward pressure on price. Some newspaper headlines will indicate property prices are too high and are overdue for a correction. Some experts will be naively (or with vested interests) singing the praises of property, reassuring investors that the market will soon rebound and investor will see similar growth in values that they experienced in the preceding few years.”
“During the middle of the Slump phase, property is clearly out of favor as an investment vehicle. It seems everyone has a horror story of losing wealth from property investments, or at least everyone knows someone else who has lost a lot of money in property investing. Most investors wish they had never started investing in property. Bad press will take center stage and the newspaper headlines will include the I told you so! position which is reinforced with stories of people who sell their homes at a significant loss.” (These articles are usually written by advisors who promote investment vehicles other than property). The lack of buyers moves values into a freefall and the realization that property is illiquid investment becomes painfully apparent. Available financing for property is difficult.”
“At the end of the Slump, the property market lacks direction. Investors generally underestimate property values and pay little heed to the sound fundamentals such as an increasing return on investment. While this is the optimum time to buy, most people avoid investing in property because it has proven to be such a bad investment in recent years as the property cycle as progressed through the slump phase. Property affordability has slowly been improving throughout the slump. There will be investor and media claims that this particular slump will never end and the boom days are gone forever. Any news relating to property will be bad. However, property investments will become noticeable by its absence from advisors’ recommendation. First-home buyers will begin to re-enter.”
Sound Familiar??
Finally….
“At the beginning of the Recovery phase, population and rental costs will start to rise rather quickly taking the market by surprise. There will seem to be a shortage of available property for rent. Affordability levels are high and property finance will become easier to obtain. First-home buyers will be very active in the market.
There is still low confidence in the property market as the slump is still fresh in most investors’ minds. The media headlines will indicate there is a shortage of rental property and therefore rents are increasing and there will be skepticism that the current pace of property value and rental growth can continue.”
I highly recommend this book to anyone who is considering re-entering the real estate market. It might not be the easiest or most exciting read to everyone but for those involved in real estate, it is fascinating.
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