Governments and central banks don’t like the 18.6-year real estate cycle.
When it turns, the economy enters a recession, people lose their jobs, and politicians lose votes.
This is why they want to kill the cycle.
The slaying of the business cycle monster is the ultimate quest to which many a central banking or Treasury hero-knight aspires.
This time will be no different.
We are now out of the mid-cycle recession and firmly in the second half of the cycle. What happens now?
Welcome to the Second Half of the Cycle
First, it will take a while for economies to rid themselves of the fear and uncertainty that has dominated the emotions of the past year.
I see early signs that the fear is going away. As we go to press, the S&P 500 has closed at the highest level in more than a year.
But as to how things unfold, based upon my study of history, take a look at the following table, compiled from the 18.6-year real estate clock I created.
Markers of the unfolding real estate cycle
Source: Phil Anderson
As the second half unfolds, it’s driven by a land boom and lavish public spending for public works (or infrastructure).
This is exactly what we are getting now.
And while there will be the normal fluctuations that you get from year to year (including the likelihood of a decent stock market correction), we should expect to see a few strong years in both.
Look out for the following:
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Sky high and rising property prices – but in more regions and cities than we had in the first half of the cycle. In fact, if this cycle follows the pattern of prior ones, growth outside the capital and major cities will be stronger in percentage terms.
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Measures by the government to support first time buyers.
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Conspicuous consumption and the celebration of extravagant living.
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A series of mega projects around the world, including increasingly tall buildings and large structures.
Underneath it all there will be an increasing sense that this time is different, that something really has fundamentally changed.
We have faced down a global pandemic, are investing to make our lives healthier, cleaner and greener. There are marvelous new technologies being developed and deployed, such as high-speed trains and autonomous, self-driving vehicles.
Office workers will have increasing flexibility on how and where they want to work. Perhaps there will also be some social and similar policies to address and quell the social unrest and political division, which might placate people – for the time being.
All of this will build up into increasingly frenetic real estate activity over the next three to four years.
At this point, when things seem brightest and strongest – this will be the time to manage your emotions and avoid getting suckered into grandiose investment opportunities offering ever greater returns.
It really will play out the same as it always has…
Regards,
Phil Anderson
Editor, Cycles Trading with Phil Anderson
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