The real estate bubble and the subsequent financial crisis have left a lasting impression on every investor.

Since then, there have always been people predicting the next crash. But are there really reliable methods to predict the crash?

The 18-year property cycle is a theory that should make this possible. In this article you will learn everything important about it.

What are the effects of the real estate cycle?

The theory behind the 18-year property cycle is that about 18 years after a boom period in the property market, there will be a crash.

The basis for this is the real estate boom of 1953-1954 and 1971-1972. Both booms were followed by a crash about 18 years later.

There are several explanations for this observed cycle. One of them is the generational shift, which brings many new first-time buyers to the market, upsetting the balance.

Another explanation is that it takes about 18 years for investors to get over the previous crash and start investing more in real estate again.

The 18-year property cycle can be divided into four distinct phases.

Crash and recession

In this phase, prices start to fall. Reasons for this can be, among others, an increased interest rate level, which we can also observe in our current environment.

This phase is expected to last about four years and will be accompanied by increased unemployment rates, making it difficult for owners to pay off their property loans.

Recreation

In the recovery phase, prices are slowly starting to rise again. This is due to falling interest rates and declining unemployment rates.

This phase is expected to last about 7 years and is the perfect time for a property investor to strike.

Market correction

The market correction phase is the shortest phase of the entire cycle and lasts for about only two years. During these two years, property prices stagnate or rise very slowly.

This may be related to interest rates rising again or regulatory constraints on the property market.

Boom

The greatest growth is expected in the 5-year boom phase. During these five years, property prices are expected to skyrocket. Something like what we saw in the Corona pandemic.

Where does the theory come from?

A theory that puts forward such strong hypotheses must of course also have been put forward with the appropriate expertise in order to be taken seriously.

The British real estate economist Fred Harrison is the father of the 18-year real estate cycle. In his long career, Fred Harrison has been able to gain a great deal of experience as an economic commentator or management consultant, among other things. This has given Fred Harrison the necessary knowledge to set up his theory.

When will the next real estate crash take place?

If you now believe Fred Harrison’s theory, then of course you want to know when the next crash is scheduled.

According to the 18-year real estate cycle, the next crash should take place in 2025. The catalyst for this was the boom phase in the real estate market that followed the financial crisis.

Certainly, one can find some similarities with our current market situation and the situation described in the crash phase. Interest rates have been tightened enormously and rising prices for commodities make it difficult to build new properties. In addition, we experienced extreme growth in the Corona pandemic, which certainly resembles the boom phase of the cycle.

Of course, no one can predict whether the real estate market will really crash. But if you believe Fred Harrison’s theory, a crash seems likely in the coming years.