It’s Not a Bubble Burst – It’s a Correction. Ride the Cycles.
Let’s talk about bubbles for a second. Apparently the property markets are filled with theoretical bubbles that are poised to pop at any given moment.
And this fills a lot of would-be property investors with fear. I’ve talked about this before, but I’ll say it again because it’s important – there’s no bubble in Australian real estate. In fact, the idea of a bubble ignores how property pricing (and indeed, pricing of any product in a free market) actually works.
The market moves in cycles. You start with a flat period, move into a boom where prices go up, you reach a peak as supply meets demand, and then you have a correction to prices when there is an oversupply. Once the oversupply is sold and supply goes back to meeting demand, you have a flat period again. It will continue repeating like this… forever. Do you see any bubbles in there? I sure don’t.
If you’re afraid of this “correction” or drop in prices, don’t be. Here’s why:
- The correction is temporary
- At the end of the cycle or the correction, prices will almost always still be higher than at the start of the cycle or previous flat period
- Your goal is not to make money in a single cycle, but to survive through many, many cycles and make your money long-term
- Smart investors buy time, not properties
- If you’re aiming to hold a property long-term, you can ride out any price drops and enjoy the increases that follow
I have clients time and time again say to me: “Gees, I wish I’d never sold. Prices were going down, I thought that was it, so I sold”.
But of course, we know that prices don’t go down forever. After these clients sold, things may have gone quiet for awhile, but then they were booming again. And the clients missed out on making a lot of money.
It’s not a bubble bursting. It’s simply a price correction. Ride the cycle and enjoy the profits.
Daimien Patterson is the CEO of Integrity Investment Properties, a property investment company based in Australia. He regularly produces books, blogs, and videos on the topic of property investing. Head to [integrityinvestmentproperties.com.au] for your free copy of Daimien’s book, Safe as Houses.