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How To Benefit From The 18-Year Property Cycle

18-year property cycle

There is serious money to be made in property. But you need to have the right knowledge. Many property investors make their decisions based on the 18-year property cycle, a theory that says house prices go up and down in a repeated pattern every eighteen years. The theory was first suggested by Fred Harrison and according to the theory, the next crash is due in 2025.

So is the theory true? And if so, how can you make money from it?

In this article, we will explain what the cycle is, why it matters, and how you can potentially use it to your advantage.

What is the 18-Year Property Cycle?

The 18-year property cycle is a theory that suggests that house prices go up and down in a repeating pattern. It was devised by Fred Harrison, a British property economist who came up with the theory after looking at house prices going back to 1953. He noticed that there were two periods where house prices had crashed and then recovered – 1953-54 and 1971-72. He also noticed that there were two periods where house prices had boomed and then crashed – 1989-90 and 2007-08.

Since Harrison first identified the cycle, it has been further developed by other economists and is used by property investors and homeowners to try and predict future house price movements so that they can make money from it.

Why does the Cycle Exist?

There are a number of theories as to why the cycle exists. One theory is that it takes around 18 years for a new generation of first-time buyers to come through and drive up prices. Another theory is that it takes around 18 years for people to forget about the last housing crash and be willing to invest in property again. Whatever the reason, many people believe in the 18-year property cycle and it is something that all property investors should be aware of.

The Four Stages of the Cycle

There are four stages to the 18-year property cycle – crash and recession, recovery, market correction, boom.

  1. Crash and Recession: This is the stage where house prices start to fall. It is usually caused by a combination of factors such as an economic downturn, interest rate rises, or over-borrowing. This stage usually lasts for around four years and is characterised by falling prices, increasing unemployment, and people struggling to keep up with their mortgage payments.
  2. Recovery: This is the stage where house prices start to increase again. It is usually caused by a combination of factors such as an economic recovery, interest rate reductions, or quantitative easing. This stage usually lasts for around seven years and is characterised by rising prices, decreasing unemployment, and people feeling more confident about buying property again.
  3. Market Correction: This is the stage where house prices stabilise or start to increase at a slower rate. It is usually caused by a combination of factors such as an economic slowdown, interest rate rises, or increased regulation. This stage usually lasts for around two years and is characterised by prices rising at a slower rate, unemployment remaining low, and people remaining confident about buying property.
  4. Boom: This is the stage where house prices go up rapidly. It is usually caused by a combination of factors such as low-interest rates, easy credit, and high demand. A boom usually lasts around five years and is characterised by rapidly rising prices, low unemployment, and people feeling very confident about buying property.

The length of time of each stage varies slightly from cycle to cycle but the overall pattern has been generally the same in the last four identified by Harrison.

property crash

Previous Crashes and Recoveries

So far, there have been four crashes and recoveries in the UK since the 18-year property cycle was first identified – 1953-54, 1971-72, 1989-90, and 2007-08.

  1. 1953-54: The first crash happened in 1953 after a period of rapid house price growth. House prices then stabilised before starting to rise again in 1954. It was attributed to a number of factors such as interest rate rises and over-borrowing.
  2. 1971-72: The second crash happened in 1971 after another period of rapid house price growth. Once again, house prices then stabilised before starting to rise again in 1972. The crash was attributed to a number of factors such as the oil crisis and the introduction of decimalisation.
  3. 1989-90: The third crash happened in 1989 after a period of rapid house price growth. Once again, there was the same pattern with house prices stabilising and then starting to rise again in 1990. It was attributed to a number of factors such as Thatcher’s recession and the introduction of the poll tax.
  4. 2007-08: The fourth and most recent crash happened in 2007 after a period of rapid house price growth. This time, there was a different pattern with house prices continuing to fall for several years after the crash. It was attributed to a number of factors such as the sub-prime mortgage crisis and the credit crunch.

Why is the Cycle Important?

The 18-year property cycle is important because it can help you to predict when the next crash is due. It can also help you to make money from property by buying at the right time and selling at the right time. The best stage to buy property is at the start of the recovery when prices are low while the best stage to sell is at the end of the boom when prices are highest.

When is the Next Crash Due?

The next crash is due in 2025-26. This is based on the fact that the last four crashes have happened in 1953-54, 1971-72, 1989-90, and 2007-08. Many economists and property experts are already backing the theory that a crash seems likely with reasons ranging from Brexit to over-valued property prices. The impact of the Covid-19 Pandemic has also been cited as a factor that could trigger a crash as it has caused economic uncertainty and a decrease in demand for property.

What Stage are We In Now (2022)

According to the 18-year property cycle, we are in the boom phase when house prices are going up rapidly. The boom usually lasts around five years, so we could expect it to finish by 2025 when the next crash is due. However, there is no guarantee that the cycle will repeat exactly each time. There are a number of factors that can affect the length and severity of each stage, such as interest rates, economic conditions, and demand.

As can be seen from the last four crashes, each had unique contributing factors such as decimalisation or sub-prime mortgages alongside more universal factors such as interest rates or demand. It is worth noting that not all of the contributing factors are known at the time and some only become apparent after the event. This means that it can be difficult to predict when a crash will happen exactly, but the 18-year property cycle provides a useful framework for understanding the market.

Over the last few years Brexit, Covid-19, the Russian invasion of Ukraine and the trade war between the US and China have all been cited as potential triggers for a property crash. Whether one comes as predicted in 2025 is yet to be seen but it is worth keeping an eye on these global events if you are considering property investment.

make money from property

How Can You Use the Cycle to Make Money?

The 18-year property cycle can be used to make money from buying and selling property at the right time. The best stage to buy is at the start of the recovery when prices are low while the best stage to sell is at the end of the boom when prices are highest.

For example, if you had bought a property in 2009 during the crash, then sold it in 2013 during the recovery, you would have made a profit. Alternatively, if you had bought a property in 2006 during the boom and sold it in 2008 during the crash, you would have made a loss.

As we are currently in the boom stage with an impending crash in three to four years from now, it might be a good idea to consider selling any property you own in the next couple of years and reinvesting the money elsewhere.

Of course, predicting the future is never an exact science and there are risks involved in any form of investment. However, by being aware of the 18-year property cycle, you can make more informed decisions about when to buy and sell property.

Is the Cycle Guaranteed to Repeat?

The 18-year property cycle is not guaranteed to repeat exactly each time. However, it provides a useful framework for understanding the market and can help you to make more informed decisions about when to buy and sell a property.

There are a number of factors that can affect the length and severity of each stage, such as interest rates, economic conditions, and demand. So while the cycle is not guaranteed to repeat exactly, it is likely to follow a similar pattern.

What are the Risks?

As with any investment, there are risks involved in property investment. These can include but are not limited to: market volatility; interest rate changes; the possibility of negative equity; and political or economic instability.

It is important to do your own research before investing in property and to be aware of these risks so that you can make an informed decision about whether this is the right investment for you.

Other Tips for Making Money From Property

In addition to following the 18-year property cycle, there are a number of other things you can do to make money from property. These include:

  • Researching the local market: It is important to have a good understanding of the local market before investing in property. This includes things like knowing what prices properties are selling for, what the local economy is like, and what the future prospects for the area are.
  • Investing in buy-to-let: Buy-to-let investing involves buying a property to rent out to tenants. This can be a great way to make money from property as you will receive regular rental income.
  • Developing properties: If you have the time and money, you can make a lot of money from developing properties. This involves renovating or building new properties to sell or rent out.
  • Flipping properties: Flipping property involves buying a property, renovating it, and then selling it for a profit. This can be a great way to make money if you are good at renovating properties and can find properties that are undervalued.
  • Getting a mentor: If you are new to property investment, it can be helpful to get a mentor who can help guide you through the process. They will be able to share their experience and knowledge with you so that you can avoid making common mistakes.
  • Using leverage: Leverage is when you borrow money from a lender in order to invest more money into a property. This can magnify your profits (or losses) if the property value goes up or down.
  • Buying property abroad: Another option for making money to buy properties abroad. This can be a great way to get good returns on your investment as you may be able to identify profitable markets that not many people know about.

Regardless of which strategy you choose, it is important to do your research and understand the risks involved before investing in property.

sell a property

Final Thoughts

The 18-year property cycle is a useful framework for understanding the market and can be used to make money from buying and selling property at the right time. However, it is not guaranteed to repeat exactly each time and there are risks involved in any form of investment so it is important to stay conscious of the potential risks. With a crash predicted in three to four years, now might be a good time to consider selling any property you own before house prices drop. Property investment can be a lucrative venture but it is never 100% guaranteed so it is important to do your own research and make an informed decision before risking your money.

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