The 18 Year Property Cycle: House Price Crash.

Today, there are more reasons for optimism than pessimism in the U.K. housing market.

The 18 year property cycle, the invisible market gauge that charts the cycle between booms and troughs, remains widely misunderstood by many investors. I’ve met very few investors with any awareness of this cycle, even among long-term market watchers and property pundits. Yet, knowledge of the 18 year property cycle that turns in tandem can be used to predict the cycle’s swings and roundabouts.

 
Questions like: When will the market peak? Will house prices crash? Is this new growth sustainable? are best answered by studying the past. As John Templeton famously said, “Bull markets are born on pessimism, grow on skepticism, peak on optimism and die in euphoria.” We haven’t reached the high euphoria just yet, but we’re well into optimism now.

Today, there are more reasons for optimism than pessimism in the U.K. housing market. Despite the past few years of a rough start, there are still many opportunities every month for smart, savvy investors to score double-digit gains.

 
Yes, in this rising house market.

 
Investors generally have a bad habit of being too optimistic when the market is high and too pessimistic when house prices are low. Remember, the best time to prepare for a bear market is during a bull market, just as the best time to prepare for the next bull market is during a bear market.

 
The herd mentality makes novice investors do the exact opposite. They shy away from buying when values are flat-line yet nose-dive back in when there is a competitive frenzy ballooning prices further up. When conditions are good, investors believe it will never end. When everything’s going bad, they think it will never get better. It’s so predictable yet so illogical. Investors will buy when all of the messages are positive, resulting in a seller’s market. Yet they won’t invest when the messages are negative, creating a buyer’s market.

 
It’s happening right now. I’m sure you’ve witnessed this in your local market?

Although we can safely say the days of 20% growth are behind us (for now), the next cycle has already begun.

 
Property markets go around in cycles of around 15-20 years. Property prices rise for 10-15 years and then decline for around 5 years, before the cycle starts all over again. This time around isn’t much different from past cycles.

 
Yes, there is talk already how “pent-up demand” will skyrocket house prices further than before and how “it will be different” this time around from the last time and the time before. But like ingredients in a recipe, there are certain variables which always drive the property cycle.

 
Over the coming years, the residential market is set to improve and in some locations and certain property types, quite substantially.

A number of things:

Looking back over past property cycles and in particular the ‘boom times’, well-located properties in certain regions doubled (on average) every 7–10 years, but this did not happen in a straight line.

The property cycle goes through 4 main yet distinct phases:

The boom has led to bust, house prices have crashed and fear is prevalent among the masses. Further price falls are expected, but this is the time the contrarian investors hover up and jump on the cheap bargains. For the majority of amateur investors, they feel like the sky is about to fall, even when faced with great cheap cash-flowing discounted assets.

 
Those who bought at the top, negatively geared or into glossy off-plan brochures, fear the pressure and may be forced to sell to prevent further losses. Repossessions and “fire sales” are unpleasant, but they create amazing opportunities for astute investors. As prices hit rock bottom, vendors unwilling to sell hold on, supply dries up, competition slowly increases, and confidence returns.

There is price growth, but it doesn’t happen overnight. The media rarely reports it early. As optimism settles in, vendors re-enter the market. Owner-occupiers and first-time buyers usually take the lead. Novice investors realise prices are moving up and demand rises. Government stimulus and low interest rates often feature here. Professional investors become more selective. Buy-to-sell activity increases, while some pay silly money at auctions, factoring growth rather than instant profit.

 
The Ripple Effect: London and surrounding “blue-chip lifestyle” areas rise first, then the middle ring, then the rest of the country. This pattern of regional recovery is consistently tracked by bodies like the Office for National Statistics (ONS) in their monthly UK house price index.

A feeding frenzy. Greed and fear of missing out dominate. Buyers will pay almost anything. Vendors push prices higher and tactics like ghost gazumping and open houses become common. Multiple buyers compete for limited stock, pushing prices above asking. Developers flood the market, oversupply builds, and interest rates rise to control inflation. Eventually, the bubble is pricked.

Spending slows, prices become unaffordable, and property values stall and fall. Banks tighten lending. Finance becomes tough, but those with cash win. The cycle returns to the Stealth Phase, ready to restart.

I would say we are currently in the Upturn Phase.

 
The market is increasingly optimistic with rising sales, more building activity, and a more balanced market (“the wormhole market”). Investor confidence is returning, especially with lower interest rates. Average gross yields are up to 5.5%, with attractive fixed-rate mortgages encouraging investors to act faster than owner-occupiers. Rents are rising as accidental landlords use the upturn to sell, adding further pressure.

 
Residential returns are now seen as less risky. Speculative and novice investors have started buying again, helped by positive media reporting. Repossessions and “priced to sell” assets are reducing. Homes sell faster as vendors hold out for asking prices. Parents help boomerang 25-year-olds get on the ladder, increasing offers and contracts exchanged.

 
Sir Winston Churchill wisely stated, “The farther backward you look, the farther forward you see,” and this applies strongly to the history of UK property prices and the 18 year cycle.

 
Bargains still exist, especially in the North, though fewer than before. Mega profits can still be made by adjusting your strategy.

As we move into the Upturn Phase, investors begin transitioning away from basic buy-and-hold approaches and towards more advanced, profit-driven strategies that offer faster returns and stronger yields, including:

The current market shows a significant turnaround, with formerly empty auctions now busy and sold prices increasing across many regions. This phase creates real, immediate opportunity for astute investors who can identify value in Commercial Conversions and markets with improving local economies.

Ignore the basic, saturated strategies like vanilla single lets. The optimal strategy is to pursue advanced, less competitive strategies like commercial-to-residential developments where they make financial sense.

The best long-term buying opportunities arrive when investors are scared out of their wits and morose about the future, typically during a downturn. Be ready to buy when the next downturn arrives and prices correct, moving against the crowd as a contrarian investor.

Progressive Property has created more property millionaires and success stories in the UK than any other property investing education provider. Since 2007, Rob Moore, Mark Homer and their team of experts have built a welcoming, tight knit community to help people achieve freedom, choice and profit by investing in property.

*I do not give financial advice, I just share my 20 years experience on what has worked for me, & I warn you about & openly share what has not. I do not do get rich quick, I do get richer for longer. No schemes, just strategies. I am not an IFA, and I do not give professional advice, I simply educate entrepreneurial people who are smart & make their own decisions. I regularly suggest you do your own due diligence & research before making your investments. And I am here to help. To see our legal disclaimer, click here