Property News | The 18 Year Property Market Cycle

You’ve probably heard about the property market cycle and wondered whether it is the right time to sell or buy property in Javea. With so much information out there, sometimes it’s difficult to understand at what point in the cycle we are, and how to avoid making a decision to sell or buy at the wrong time. Well, continue reading and you will find out why now is the best time to both sell and buy.

The 18 year property cycle concept was conceived by Fred Harrison, a renowned British economist.  

Understanding the Property Cycle:

Knowing that there is a cycle is not enough to make the right decision. It is important to understand that the cycle lasts roughly 18 years, and it is useful to understand that crashes are inevitable, but each cycle starts from a higher bottom than the previous one, so the long-term trend is always upwards, even though there’s a lot of volatility along the way.

There are specific signals that help to know where we are in the cycle, and spotting them is crucial to understand when prices will increase or fall. For instance, banks lending more and more funds indicates prices will go up, as there will be more demand for properties, but the supply will be the same as property is a fixed asset. On the other hand, agents and media trying to rationalise ridiculously high property prices is a great indicator that prices have reached the peak and will soon drop.

Why Is There a Housing Market Cycle?

Unlike most markets where supply and demand forces stabilise prices, the property market operates differently. Property supply is limited and although more properties can be built, it is not possible to create more land where properties can be built. This causes a constant increase in property prices as demand for new properties, shops and offices go up. When the economy grows, the extra demand for properties pushes prices upwards.

Of course, a consequence of this is property prices outpacing salary increases, until it’s impossible to afford purchasing a property.

The Stages of the 18-Year Property Cycle

The property cycle, averaging around 18 years per cycle, has distinct stages and is caused mainly by the imbalance between supply and demand, leading to periods of growth, speculation, and recession.

The stages include the Recovery Phase, Expansion Phase, Explosive Phase, Winner's Curse Phase, and Recession Phase. Each stage is characterised by specific investor behaviours, with professionals often achieving better results than amateurs.

The recovery phase is perfect to enter the market again and buy, as there are some signs of prices going up again, but not so quickly. During this period, a typical amateur behaviour is to remain cautious or sell at a loss, thinking that prices will continue to drop. On the other hand, the expansion phase is good to sell and make a profit. While amateurs would speculate, believing that prices will continue to go up indefinitely, the truth is that they will continue to go up only for a few more years before reaching the peak.

Where are we now?

Entering the last part of 2023, concerns about a housing market crash due to rising interest rates and inflation continue to invade the media and property newsletters. It is not unrealistic, especially after the 2022 cost of living crisis, increase in mortgage interest rates and war.

However, if we pay attention to the 18 year property cycle, such a crash should not occur for another three or four years. It’s important to pay attention to the signals in the market, and to unforeseen events that may alter the course of the cycle so that we know when to make the right decision.

As mentioned before, each cycle starts at a higher bottom than the previous one, so technically there is no bad time to purchase a property because the long-term trend is always upwards. If you’re purchasing a holiday home, you end up saving on expensive hotels and you can even rent the property when you are not there, thereby making additional profit along with any capital gain.

So, the burning question is - Where are we in the 18-year property cycle in Javea? From our research data, the lowest part of the market after the crash of 2007/2008 was in 2013 (year 1 of the cycle) and we have seen steady growth since then, with a few bumps, until the last year or two when the prices have risen quite considerably. Now, nearing the end of 2023 (year 10) we are mid-way in the explosion stage, so if the 18 year property cycle concept is correct we have 3 or 4 more years to go until 2027 (year 14). Year 2028 the recession stage will start.

If you are looking to buy

There is never a bad time to buy a holiday home. It’s bought for enjoyment and not a sure thing investment. Savings are made on not paying for expensive holidays and renting your property as an asset, which negates some of the risk of capital gain, solely on the property price fluctuations.

But if the 18 year prediction is correct, then in 2023 we have not reached the top of the market and if you buy now, when the market does fall, and it no doubt will at some point, it should not fall below the price you purchased at. And, so long as you intend to keep it for a good period of time the market will always rise.

If you are looking to buy your dream holiday retreat or permanent home in Javea please contact Amber at +34 661 299 625

If you are looking to sell

As regards to selling, a rising market is a perfect time to sell, as it allows you to cash out and secure your profits instead of speculating about a greater increase without rationality and putting at risk the profit made during the cycle. Property prices in Javea have increased by 75% during the last 10 years, giving most vendors a considerable profit. An old stock market phrase is “Sell when you’re singing”. So if you are calculating now the profit you have made and singing about it – Now is the time to sell! Don’t hang out for higher prices and end up missing the boat.

If you are looking to sell or would just like a free no obligation valuation of your property in Javea please contact Valentina at +34 665 833 032.