Rachel’s note: On Monday, Phil published the first piece in a series in which he explains the “Cantillon effect” and its relationship to the 18.6-year real estate cycle.
He called it the most reliable indicator of the cycle.
Catch up on that right here. Then read on for how to break down the cycle using the skyscraper index.
There is little point asking any mainstream economist if there is a real estate cycle.
Economics today is about modeling – via algorithms and formulas – what they believe will happen to an economy during the good times and bad. And, without fail, they get it wrong.
Every single time. This is why I don’t trust them.
On the other hand, my research has benefited thousands by showing not only how the real estate cycle drives the economy but, more importantly, when.
If you asked me to explain how the cycle works in a single equation, here is what I would show you:
7 + 7 + 4 = 18.
This neatly encapsulates the basic visual representation of the real estate cycle.
Here it is.
You may at first regard this equation and the chart above as an oversimplification. But that would be a mistake. As an investor, this diagram really is all you need to know.
It is brilliant in its simplicity, it is correct, and it unlocks the cycle for you.
You just need to remember the following:
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These are the average number of years for each full real estate cycle and the two expansionary halves (7 years each with a short, mid-cycle slowdown in the middle) and the crash and recovery period (4 years). Allow a little variation on either side of these averages.
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The real estate cycle is the economic cycle. So, when the real estate cycle is up, so is the economy. And when it turns down, so does the economy. Particularly at the end.
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Apply these numbers to the United States first and foremost. And know that other Western economies, including the UK, Australia, Canada, Europe, and even some advanced Asian ones, such as Japan,are up to a year behind. The U.S. leads, however.
Once you know this, you really shouldn’t have a problem understanding what is going on in the economy.
How the Skyscraper Index Fits in the Cycle
As a reminder, the Skyscraper Index is a concept introduced in 1999 that showed that the world’s tallest buildings – skyscrapers – were usually built right before an economic downturn.
Now, let me demonstrate how best to overlay the cycle with the Skyscraper Index.
Here is a graph of the number of skyscrapers – buildings taller than 70 meters or about 230 feet – built during the 20th century in New York.
Note the years of “peak skyscrapers.”They were 1908-1913, 1930, 1972, 1986-1990, and 2007-2009.
Source: Richard Vague, historyofdoom.org
Please make a note of the dates above… they are at or just after peaks of each preceding 18.6-year realestate cycle.
This is a visual demonstration of the point I made above.
Hence why the Skyscraper Index is such an important indicator for us.
It is extremely useful for investors looking to understand the 18.6-year real estate cycle.
In the next part of this series, I’ll give you more examples of how the world’s tallest buildings became a reliable indicator of both the economy and the real estate market.
Stay tuned.
Regards,
Phil Anderson
Editor, Cycles Trading with Phil Anderson
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