From Bust to Boom Flashcards
Why explore property cycles? 3 points
- Enables setting of strategies.
- Helps benchmark market performance.
- Provides a baseline for valuing assets in commercial contracts.
What are the 4 stages of a real estate cycle? 4 points
- Recovery
- Expansion
- Hyper supply
- Recession
What characteristics does the recovery phase have in the economic cycle? 8 points
- Stimulatory economic policies.
- Confidence picks up.
- Inflation falling.
MARKETS
4. Short rates low or falling.
5. Bond yields bottoming.
6. Stock market rising.
7. Commodities rising.
8. Property prices bottoming.
What are stimulatory economic policies? 3 points
- Interest rate cuts.
- Government spending increases
- Quantitive easing.
What characteristics does the early upswing phase have in the economic cycle? 8 points
- Increasing confidence.
- Healthy economic growth.
- Inflation remains low.
MARKETS
4. Short rates neutral.
5. Bond stable.
6. Stock market strong.
7. Commodities strong.
8. Property prices picking up.
What characteristics does the late upswing phase have in the economic cycle? 8 points
- Boom mentality.
- Inflation gradually picks up.
- Policy becomes restrictive.
MARKETS
4. Short rates rising.
5. Bond yields rise.
6. Stock market topping out.
7. Commodities rising strongly
8. Property prices rising strongly.
What are restrictive economic policies? 4 points
- Raising interest rates on loans, credit cards and mortgages and increasing requirements for new lending.
- Reducing government spending.
- Raising taxes.
AIM: To restrict spending and slow economic growth.
What characteristics does the economic cycle have when the economy slows and enter recession? 8 points
- Confidence suddenly drops.
- Inflation continues to rise.
- Inventory correction begins.
MARKETS
4. Short rates peak.
5. Bond yields top out.
6. Stock market starts falling
7. Commodities starts falling
8. Property prices top out.
What characteristics does the recession phase of the economic cycle have? 8 points
- Confidence weak.
- Inflation peaks.
- Production falling.
MARKETS
4. Short rates drops.
5. Bond yields drops.
6. Stock market bottoming.
7. Commodities weak.
8. Property prices weak.
What are the demand side factors for booms and slumps in the property market? 6 points
- Strong economic performance - Increased business activities - Increased space demanded - rent rising.
- Weak economic performance - Decreased business activities - Decreased space demanded - Rent declining.
- Changes in building use
- Demographics
- Interest rates
- Government policies
What are the supply side factors for booms and slumps in the property market? 5 points
- Strong economic performance - Increased investment in development - Increased space supplied.
- Weak economic performance - Decreased investment in development - Decrease space supplied.
- Rising interest rate slows supply.
- Town planning.
- Land scarcity.
How long is the typical property cycle?
18 years.
Why is the current property cycle different to previous cycles?
Because of the effects of Brexit, COVID 19 and the impact of online retailing.
What happens at the recovery stage of the real estate cycle? 2 points
Recovery begins when the market at its most devastated and continues while it gets better (1). Property prices low, rental growth remains stagnant with no signs of new construction (2).
What happens at the expansion stage of the real estate cycle? 4 points
Healthy market (1). Public start regaining confidence in the economy (2). Economy improving, job growth strong, increasing demand for space and housing (3). Supply shortages - Property prices rise (4).
