While there’s an overall business cycle that moves from highs to lows as the economy expands and contracts, there are similar cycles in individual property sectors as well.
The property market’s cycle tends to last seven to ten years, almost the same as the overall economic cycle.
The property cycle is affected by the general state of the economy, as well as other factors, which means the two aren’t always in synch, as they move at different rates and times. That’s because the property sector is heavily influenced by one of the most fundamental concepts of economics, the law of supply and demand and there’s a constant battle between these two forces as they try to get into balance.
This is how supply and demand works in the property market.
If a lot of people are looking to buy a house, or want to live in a particular area, property prices in that area will go up. Seeing this, builders and construction companies looking to make a profit will try to meet the demand by building. This will increase the overall supply of property, so there’s less competition for houses and prices come down. Once the supply of properties equals the demand for them, things settle down, at least for a while.
On the other hand, if only a few people are looking to buy because they’re worried about losing their jobs, or the properties are thought to be too expensive, or aren’t where people want to live; prices will fall until they reach a point where people will start to buy once again. Now, demand for properties goes up until it equals the supply.
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