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Time for a real estate post 🏘️ The 18.6 year real estate cycle... does it exist? Is it a made up thing? Not in my opinion, and it has strong correlation to many aspects of the wider economy - interest rates, demographics, income, etc. Lets break them down below. 1/ Firstly, the cycle itself usually has a pattern of 14 years boom, followed by 4 years of bust. The next peak is expected soon, probably following the current business cycle. 2/ Here is some U.K data to visualise the previous cycles, and how close we are now. Below is a chart showing the % of disposable income spent on mortgages. The previous peaks (1989 and 2007) happen not too long after breaking above the 40% mark. As of Q3 2024 we are at 36.4%, with a recent peak of exactly 40% in Q4 2023. Why did the S&P500 crash during 2007 and not 1989? More on that further down, but I dont expect the same crash this time either. 3/ Another way to analyse the effect on affordability is the house price to wage ratio. This chart is a little outdated, and it peaked in 2023 at around 9. I added the trend channel to show the cyclicality of interest rates and how they affect this ratio. When long term interest rates peaked roughly around 1920 and 1980, this ratio bottomed. As interest rates have bottomed from a generational perspective, similar to 1950, we can expect this ratio to drop. If the trend channel continues to work, this should bottom around 5 to 6. This doesn't mean that things will be any easier, as higher mortgage costs will counter lower house price/ wage ratios. 3/ So what about the specifics of 2025/26? Data is always slighty different, depending on who provides it. So I added 4 here to make the same point... this time it is China. Many know this intuitively. If you look below you will see private credit as a % of GDP. Notice the similarities to Japan in 1989, and U.S/Europe in 2007/08. Conclusion - we live in a globally connected system, so ofcourse there will be spillover like 2008. How other countries fare, will largely depend on how connected they are to China, how important real estate is to their economic growth, as well as debt/demographics. Following the 1989/90 bust, the U.S and U.K stock markets had a fairly standard correction of 20-25%. I am expecting something similar this time, although when the time comes, I am sure many will be calling for and posting 2008 style crashes/fractals.

Perhaps the real estate cycle already peaked.