The Second Half Surges

Remember, the second half of the cycle, historically, is stronger than the first.

The bullet points below set out the pattern.

1. Growth in values was flat between 1955 to the early 1960s, then rose strongly through to 1974
2. Growth from the late 1970s to the mid-80s was flat, then rose strongly between 1987–89 (the winner’s curse phase of the cycle)
3. There was flat growth from the early 1990s to the mid-1990s, then the market boomed between 2001–08
4. And again, the market was flat (outside of Melbourne and Sydney) between 2012–19, meaning we can expect price rises to continue through to 2026

Also, smaller capitals (by population), along with regional cities, do better in the second half than in the first.

You can see this in the charts below.

Smaller capitals (by population) go nowhere in the first half of the cycle but take off post the mid-cycle recession.

The charts below show the general trend of things in the second half of the last cycle (between 2000–07/2010).

COVID exacerbated the pattern in this cycle.

In 2020, we witnessed the rush of migrants into areas once considered too remote, too small, lacking in amenities, culture, or sophistication — creating a boom in prices, with 30% plus returns in many regions between 2020 and the end of 2021.

The sharp pullback in 2022 — exaggerated by rising rates — was, in hindsight, inevitable.

Without continued stimulus payments and an easy lending environment, it could not be sustained.

However, now we have returned to a pattern that has been evidenced in all three recent cycles.

In the run-up to the peak — 1973, 1989, 2008 — rates always increase sharply alongside prices (much like they’re doing now, as we approach the expected 2026 peak).

According to the newest scoop from PropTrack’s Market Insight, real estate prices across the country are on a steady upward trend.

If things keep going at this rate, we will see them not only bouncing back to positive annual growth by July but going above their previous peak by January 2024 — just in time for the winner’s curse period of the cycle projected to be between 2024–26.

In Sydney, prices are already up 3% from the November 2022 low.

Melbourne is expected to return to positive annual growth by October.

In Adelaide, prices reached a new peak in May.

And Perth, where the market correlates more so with the commodity cycle (K-Wave) than the real estate cycle, hasn’t even experienced a downturn!

WA tends to boom when there is investment into mining — it attracts population growth due to high wages and demand for skilled labour.

As with Adelaide, prices in Perth reached a new peak in May of this year – and the spruik on the ground is that demand will continue to accelerate.

Sean Hughes, Realmark Coastal director (Perth), said he expected prices will skyrocket over the next few years.

‘I think WA could see 40 or 50% growth in the next three years…

‘We have a massive undersupply…even if we had numbers where we are at the moment, and we just had a localised demand, we would have an increase in prices.

‘But the demand is coming not just from locals. Such a big portion is east coast and overseas based (buyers). In 25 years of selling real estate, I’ve never seen as much inquiry from east coast and internationals.’

This news wouldn’t be surprising to my Cycles, Trends & Forecasts subscribers.

We’ve been tipping Perth for big gains in the second half of this cycle since releasing our state-by-state forecasts for 2020–26 back in 2019.

He noted in the same edition, ‘There is potentially a massive boom ahead in WA/Perth!’

It’s not surprising also when you consider the state is coming from a low base — where you can still pick up great real estate for sub $500,000 prices, along with the best rental yields in the country.

Understandably, it’s attracting a lot of speculation.

But as much as supply/demand can keep an upward trajectory in the market in the short term, for prices to really take off nationally, there needs to be a match to the flame.

I’m talking about credit.

As we know from previous historical patterns, during the second phase of the cycle, lending institutions typically find innovative ways to attract borrowers regardless of cost-of-living pressures.

We saw it in the savings and loans crisis in the lead up to the 1990s crash.

And the sub-prime crisis into 2008.

Here the seeds for this cycle are perhaps only just being sown.

Commonwealth Bank has just joined Westpac in cutting the serviceability buffer attached to prevailing market interest rates from 3% to 1% for borrowers with strong repayment records and substantial home equity.

Some private lenders have already made the move in advance of the majors, and competition in the mortgage market remains intense.

It will certainly assist those buyers that are about to fall off the fixed rate mortgage cliff over the course of this year — perhaps preventing sales in some situations and, thus, keeping supply tight.

If all goes to plan, it will keep markets pumping into the peak.

Punters will enter 2026 seeing blue skies ahead — not expecting catastrophe awaits with a dramatic recession imminent.

Of course, all analysis we do at Land Cycle Investor is taken within the context of the 18.6-year real estate cycle.

Fundamentals can inform us about short-term movements within the cycle, but it has to be taken against the backdrop of centuries of data that provide a roadmap to the major recessionary periods within the economy.

If you want to gain greater insights as to why we have a cycle, why it’s 18 years, and how you can use the knowledge to invest in both land, commodities, and stocks, check out the information over at Cycles, Trends & Forecasts.

Best wishes,

Catherine Cashmore,
Editor, Land Cycle Investor