Note from Ryan Clarkson-Ledward
Since the stock market first took a dive in late February, everyone’s been asking us if we think the same fate awaits Australia’s property market.
Well, this is the question we want to address for you over the next few days, with the help of real estate experts Catherine Cashmore and Callum Newman, from Fat Tail Media’s Cycles, Trends & Forecasts.
Yesterday, Callum explained why he believes the COVID-19-inspired crash won’t be felt as sharply in the real estate market as it has on the ASX.
And he provided compelling evidence that any property market downturn is likely to be short-lived (also that the rebound will send capital city markets soaring to new highs).
In today’s property-focused essay, Callum shows us WHY he’s so confident in making these big predictions.
According to Callum, there’s a ‘silent force’ that drives house price booms and busts in Australia. A force many can’t see and few really comprehend.
But understanding this force — and the pattern it generates — says Callum, is the key to knowing when to invest…when to sell…and when to stay put. Valuable information indeed.
Cal’s own reading of this pattern helped the team at Cycles, Trends & Forecasts make that big call back in 2014…that we’d see a slowdown and possible recession THIS YEAR.
So today, I’ve asked Callum to explain what’s behind this mysterious pattern, and how it can help you predict what’s likely to happen in our property market, this year and next…
Our publication Money Morning is a fantastic place to start on your investment journey. We talk about the big trends driving the Australian Economy, such as the Property Market and most innovative stocks on the ASX. Learn all about it here.
The Secret Rhythm of Australian House Prices
SPECIAL REPORT by Callum Newman
Take a look at this (emphasis mine):
‘This allows us to date the mid-cycle slowdown of the new real estate cycle. The half-way point of 14 years up. A 2019 peak into 2020 / 2021 recessionary years, with 2021 the low…’
This was our big claim, back in the very first issue of the newsletter I co-edit, Cycles Trends & Forecasts.
We came out with this particular forecast in June 2014.
Six years ago.
Some people say predictions are for fools. Or attention seekers.
I like to think I’m neither. But I’m acutely aware that when you make a call like this, you open yourself up to ridicule.
People think you’re bonkers.
And I wouldn’t be human if I didn’t worry about these things.
The thing is though…we were right.
And I kind of knew we would be.
But this is not about how brilliant or prescient we are. No one on our editorial team is a fortune teller or clairvoyant… as far as I know.
We’re just students of a particular school of economic thought.
One that asserts:
Our economy moves in a cyclical pattern that repeats every 18 years
More specifically: There are 14 years where asset prices generally go up…and four where prices generally fall.
Even more specifically, in the middle of the 14-year uptrend, you get a brief market downturn…exactly like the one we’re experiencing now.
The last ‘mid-cycle’ downturn came along in late 2001…roughly 18 years ago.
It was triggered by the events of 9/11. During this time, the US stock market suffered its worst one-day points fall in history — since eclipsed by the market’s reaction during the coronavirus pandemic.
This cyclical pattern told me and my colleagues — as far back as 2014 — when we could expect the next downturn:
There have been three of these 18-year cycles since the Second World War…and the property and stock markets have followed the script each time:
14 years up…four down…with a brief downturn roughly in the middle.
Now, this is not an explanation you’d ever hear in the mainstream media.
And that’s a good thing.
It’s advantageous to know about this pattern when so many don’t. My colleague Catherine Cashmore and I will show you exactly how advantageous that can be in a few days’ time…
Before then, you’ll hear from a man who used his knowledge of this cycle to predict the 2008 crisis 11 years in advance.
His name is Fred Harrison.
I can guarantee you’ve never heard of him…
And yet this man has the most impressive forecasting track record I’ve ever come across (we based our 2014 forecast on his research).
For example, Fred predicted in a book called The Chaos Makers in 1997 that house prices would peak in a decade and result in a global financial crisis.
Check this out. He wrote:
‘By 2007 Britain and most of the other industrially advanced economies will be in the throes of frenzied activity in the land market…Land prices will be near their 18-year peak…on the verge of the collapse that will presage the global depression of 2010.’
He was staggeringly accurate.
Here in Australia the ASX 200 fell 53% from November 2007 to March 2009.
You’ll most likely remember this. If you invested through it, I’m sure the scars remain.
Now, as accurate as this prediction was, it wasn’t the first time Fred predicted a major recession and asset collapse.
In 1983 he published a book called The Power in the Land.
My copy is a treasured possession.
He forecast — in 1983 remember — that Britain would be in a major recession in 1992, 18 years after the last big one in 1974.
Britain and the US — and Australia for that matter — were in a major recession by the early 1990s.
So how does he do it?
And how was the newsletter I co-edit — following Fred’s research into the 18-year real estate cycle — able to predict today’s market crisis six years ago?
Well, the title of Fred’s 1983 book may give you a clue.
It’s all to do with the power in the land.
Fred places the real estate market — and the return you can get from owning parts of it — at the very centre of his analysis.
He’s found that UK property — going back over 400 years — historically rises for 14 years and falls for four in this same 18-year-cycle pattern.
An identical pattern is evident in the US as well.
This is what has become known as the 18-year Real Estate Cycle
Recently, Catherine and I jumped on a call with Fred (who’s based in the UK) to talk to him about how this cycle predicted the current downturn…and how quickly we’re likely to come out of it.
What he told us was illuminating…reaffirming…and reassuring. I’m sure it will be to you, too — if you’re worried about:
- Whether the ASX is likely to fall further…and
- Whether the Australian property market will collapse
We recorded that call and we’re going to link out to it in the next day or two, so you can listen in.
But as Fred explains it, the upward swing of this cycle is associated with rising house (really land prices) expanding credit and upbeat consumer spending.
The downturn exhibits falling house prices, contracting credit, and rising unemployment.
You can basically boil it down to this…
What drives the economy up and down in the 18-year cycle is the interaction between property values and the banking system.
There’s something very important you must understand.
Banks don’t ‘lend’ money when they make loans. They create credit out of nothing.
And banks create 97% of the money supply in the economy — not the RBA or the government.
Most bank credit flows into the real estate market via mortgage debt.
This flow then filters out into company earnings, stock prices and economic growth (depending on where we are in the 18-year cycle).
This is powerful knowledge
It can help you ‘see’ things many other investors can’t: booms…crashes…rebounds…downturns — far in advance. Meaning you can make exciting future plans with more confidence.
If you know this ‘secret rhythm’…if you can tune into it…I believe you can seriously improve your future financial prospects. Yes, even in this market.
Using Fred Harrison’s framework, we were able to predict:
- A ‘mid-cycle’ downturn in 2020
- The next global real estate bust (which, according to the cycle, will happen in 2026 — 18 years after 2008)
But how do we take advantage of all this now?
Well, here’s where it gets exciting.
You see, typically, what follows the slowdown at this point is the second leg of the cycle…where the upswing tends to be more powerful.
I know it doesn’t seem like it now…nor will it for a while…but the cycle tells me that stocks and property are on track for the biggest boom of all time into 2026.
Yes, that’s my next prediction…and you read it here first!
For Money Weekend
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