TPP556: Can you still trust the 18-year property cycle?
Nov 9, 2023
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Akhil Patel, cycle expert, joins Rob Dix to discuss the 18-year property cycle and its relevance in today's market. They explore the potential trajectory of the property market, analyzing factors like sentiment, central bank policies, and inflation. They also discuss unexpected scenarios, property prices and affordability, and investing in the remainder of the decade amidst global events and the Condratiev wave.
Understanding the property cycle can help investors make informed decisions and avoid costly mistakes.
Investors should focus on the quality of assets, rental income, and the ability to withstand market fluctuations rather than solely relying on affordability metrics.
Deep dives
The property cycle and Akkel Patel's expertise
Akkel Patel, a property cycle expert, has successfully predicted market trends since 2014. His knowledge and insights have proven valuable in an industry where many have been wrong. In this podcast episode, Patel discusses the property cycle and addresses doubts raised by the hosts about its current state. While the hosts question whether the market is close to a peak, Patel argues that sentiment can shift rapidly, and historical evidence suggests that we may not be as close to a peak as it seems. He also highlights the impact of central bank policies, stimulus measures, and supply constraints on the property market. Despite recent price declines, Patel believes that prices are poised to rise due to increasing wages, rental demand, and affordability. His overall perspective is that understanding the property cycle can help investors make informed decisions and avoid costly mistakes.
Exploring alternative scenarios
The hosts of the podcast present alternative scenarios to challenge the traditional property cycle viewpoint. One scenario suggests an extended cycle, where a recent artificial boom needs time to cool off before entering the next phase. While this implies a longer cycle, Patel cautions that property prices may become decoupled from rents as the cycle progresses. Another scenario discusses the possibility of a gradual deflation where prices gradually drift downwards due to the reversal of a long-term trend in interest rates. Patel highlights that it is difficult to predict the trigger for a market downturn, but historically, such events have been preceded by speculative activity, tight financing conditions, and forced selling. He encourages investors to consider the practical implications of these scenarios and make careful investment decisions based on their individual circumstances.
Assessing house price affordability
The podcast also delves into the topic of house price affordability and the conflicting conclusions that can arise from different metrics. While the house price-to-earnings ratio suggests that prices are historically high, other indicators show that prices are relatively low in real terms. Patel emphasizes that there is no absolute level of affordability and that past periods have also seen unaffordable prices. He points out the availability of debt servicing, government interventions, and changing market dynamics that can sustain prices even at seemingly high levels. Patel advises investors to focus on the quality of assets, rental income, and the ability to withstand market fluctuations rather than solely relying on affordability metrics.
Practical use of cycle knowledge and managing emotions
The podcast concludes by discussing practical ways to utilize knowledge of the property cycle. Patel's book, 'The Secret Wealth Advantage,' provides insights into the underlying forces that drive the cycle and helps investors navigate investment decisions. The book emphasizes the importance of avoiding over-leveraging and overpaying during speculative moments in the market. Patel encourages investors to be patient, wait for opportunities, and avoid the temptation to make extreme decisions based on fear or market sentiment. He also addresses the emotional challenges of investing during turbulent times, highlighting the need to have a long-term perspective and understand the historical patterns that shape market cycles.
Rob & Rob are losing faith in the 18-year property cycle...
Can we still look to the cycle for guidance on what’s actually happening in the market, or has the concept finally been rendered redundant?
Join Rob Dix as he interviews cycle expert Akhil Patel, and dives into everything you need to know about the cycle, whether it can still be trusted today and how you can make practical use of it.
