The housing market cycle drives the British property markets and global foreign exchange. Simply put, the housing market adheres to a historical, categorisable, and recurring sequence of events. The housing market cycle is not unique; it is related to the credit, business, and general notion of economic contraction and expansion.
Even though this cycle has historically been a helpful tool for viewing the market and providing a framework for understanding the many phases of the housing market, few people have been able to utilise it to foresee housing prices. The 18-Year housing market cycle is one of the few credible hypotheses that predict property prices.
What Is The Housing Market Cycle?
In 1998, Fred Harrison accurately predicted the 2007-2008 financial collapse, making him famous. According to Fred, the British real estate market followed an 18-year cycle. In his book “Boom and Bust,” published in 2005, he supported his theory by establishing the 18-Year cycle’s recurrence over two centuries of UK housing price data. Fred’s arguments are endorsed by the property market collapses of 1953-1954, 1971-1972, and 1989-1990.
Stages of Housing Market Cycle
Crisis
The housing market crisis stage lasts for three to four years.
Recession
The recession stage follows after a housing market crisis. Investors and lenders leave the market, and demand for property dries up. There is usually an oversupply of housing to drive down the prices.
Recovery
Following the recession is the recovery stage. During this stage, confidence gradually returns to the market, and prices increase over the next 6-7 years.
Market Correction
After the recovery stage, a brief market correction that lasts for one to two years occurs, during which prices stop for air. It begins when investors become concerned about the sustainability of expansion and rising prices.
Boom
Following the market correction, the boom period begins. The demand is fuelled by government stimulus and cheap financing restrictions. But the market cannot keep up like this forever. It leads to rental increases and high housing prices over the next five to six years.
The resulting peak and decline indicate the beginning of the next housing market cycle.
Where Are We Now?
If the 18-Year housing market cycle is accurate, the UK property market started its boom period around 2019 and 2020. Interestingly, this links with the unexpected increase in home prices over the last year. There are apparent signs of a boom period. The 8.6% increase in home values over the previous year is unmistakable. Currently, government programs are stimulating the housing market, with more easily accessible financing and 95% mortgages are all indicative of the boom period that will lead to a housing market crisis in coming years.
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