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The Eighteen Year Real Estate Cycle

The Eighteen Year Real Estate Cycle

dream-homewebPeople fall in love with having a “dream home,” and cost is usually secondary. They get into debt up to the eyeballs.

Really bad idea, particularly right now. That’s because we’re at the very top of the market. In fact, it’s a bubble … certainly in Canada (and Australia is close behind). The US had their housing bubble a few years ago … but the full extent of the downturn is still to be seen.

We’re in a Worldwide Real Estate Bubble

Central banks have lowered interest rates to almost nothing in order to spur more borrowing. However, it results in more people buying homes they can’t really afford, and artificially drives up the price of those homes.

canada housing bubbleHere’s a visual from an article I clipped from zerohedge.com in March of this year about the Most Overvalued housing market in the world … by the Economist, a well-respected international financial magazine. You’ll find the full article here.

The other, possibly even bigger problem for Canada is that the International Monetary Fund (IMF) a month earlier than this article came out, sounded the alarm that Canada’s household debt is well above that of other countries. Canada (where I live) has the perfect storm just waiting to happen, and it won’t be long before it does.

But. guess who thinks it isn’t a problem? Stephen Harper, the Canadian Prime Minister, and the Bank of Canada (Canada’s central bank) both tried to quell fears that anything is amiss. Of course, they’re both heavily biased.

millennails articleFunny enough, I noticed another article a few days ago on the site Marketwatch, about Millennials (25 to 34 year olds, in this case in the US) and the concern that they’re NOT buying homes. You’ll find the complete article here. I say, “Good for them!”

People just don’t get it. But Millennials do!

Buying a home right now would be really foolish. It’s the top of the market. You’ll be underwater financially in no time.

There’s a little more to it than that, actually. There’s an even larger, longer cycle in play right now … the 172 year cycle. (you can see my video on it here) It’s bottoming. What this means it that the usual 18.5 year real estate cycle is going to go a lot deeper than normal. Longer cycles are more powerful than shorter ones.

The 18.5 Year Real Estate Cycle

Edward R. Dewey spent an entire chapter on it in his book, “Cycles, the Science of Prediction.”

realestatechart5Above is a chart showing the pattern from 1795 through today. You can see how regular it is. It averages about 18 and a half years. If you’re smart, you buy a home at the bottom and sell (or keep it) at the top.

We had a major low in around the year 2000 in both the US and Canada. The US had a top around 2007 associated with the subprime crash. If you were to look at the appropriate chart (the real estate sector) in the US stock market, you’d see it peaking about now. It’s had a second top within the 18 year cycle. I would expect both the US and Canadian cycles to head down now and bottom in about 3 years.

Canadian Real Estate Market REV3
Here’s a chart of  Canada’s real estate market over the past 18 years. It’s peaking right now and I would expect another low around the year 2018 … not very far away. The challenge with identifying the Canadian cycle is that they only started recording data about 20 years ago.

This 18.5 year real estate cycle is also a rainfall cycle. It’s called the 9.3 year rainfall cycle. Dr. Raymond H. Wheeler, the Father of Climate Cycles, found that it’s wet on the upside (wet leads to prosperous times) and dry on the downside (we’re in a drought right now … it’s getting cooler and dryer worldwide, which leads to depression). Droughts always lead to depression. They always have … throughout history.rranom-vic-0112-19917

Above is a rainfall cycle for Victoria, Australia, which shows the 18.6 year rainfall cycle in action (Source: TallBloke’s Talkshop)

Don’t get fooled by interest rates. As I mentioned earlier, central banks (like the Federal Reserve in the U.S., the European Central Bank, and the Bank of Canada) have instigated the lowest rates in history to try to spur the economy, but they’ve been unable to do it.

DOW-topping-webI’m expecting a very big crash very soon. The US stock market has already topped. Oil has tanked, but it’s got further to go. And interest rates are going up … quite a bit. Can you afford a big jump in interest rates? Well, I’d do the math before signing on the bottom line!

So … if you’re thinking about buying a home … think long and hard. Personally, I’d wait a few years until this bubble crashes and get in at the bottom. Some of us are projecting homes to be worth under 25% of what they are now in just five years – that’s not long to wait to get your dream home.

Edward Dewey, the Father of Cycles said:

“The building cycle is so long that most people don’t experience two cycles in their business life. For many individuals, an unfavourable first experience means a life-time tragedy.”

Pay careful attention to the real estate market, the stock market, and the economy. The central banks have created an extreme bubble and bubbles always burst. The signs are becoming more and more ominous. We’re likely only months away from a really large contraction.

Don’t let anyone tell you this time is different.

 

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{ 12 comments… add one }
  • Nicola Timpa August 14, 2015, 4:55 am

    thanks

  • Joel Lovingfoss August 14, 2015, 12:35 pm

    Very insightful presentation Peter… I will put Dewey’s book, Cycles: The Science of Prediction, at the top of my list. Thanks!

  • Kent August 25, 2015, 1:01 pm

    For some reason, I still remember that real estate chart in Cycles when I read it in the 70’s. But Phillip J. Anderson says the 18 year cycle has already bottomed, and it is clear sailing until 2024. Any thoughts on this.

    • peter August 25, 2015, 1:43 pm

      Hi Kent,
      I can’t comment on someone’s else’s cycles analysis.

      I can tell you that the Canadian and Australian markets are leading the bubble (currently right at the top), and with commodities having sunk to new lows and the most of the world markets starting to head down, I haven’t seen a bottom anywhere. Now, some might say the US had a bottom in 2008/9 but I attribute that to the subprime crisis and with the depression picking up steam, I expect everything to be in a trough by 2020 or so. The US market has a lot further down to go. This is going to be a big, long trough, so 2024 would certainly fit well within it. The US and Canada have been in a technical recession for months, and so everything is pointing down, as well as quite a number of cycles, not only the real estate cycle.

      Don’t know that I’ve answered your question …

  • Joe October 19, 2015, 1:25 am

    Hi Peter
    your Canadian ?
    both my parents came to the US from Canada and I still have cousins up there . I’m a yank though having grown up in Seattle and spent the summers sailing in the san Juan islands , great place . I live in southern Oregon now but visit family and friends each year in Seattle and from what I’ve seen the construction boom has gone crazy in downtown Seattle as well as Bellevue along with the smaller cities . it certainly has a topping feel to it .I’m curious though In regards to Canada real estate , didn’t they impose a transaction tax back in 2009-2010 on real estate ?
    I have no idea how that effected the market or if it really effected anything ? also do you think the GST is a good thing ? would you think it would be benificial to have a similar tax in the USA now that you have seen it and lived with it ?
    Joe

    • peter October 19, 2015, 6:51 am

      Joe,
      Canadian, yup. I lived in NY though during my teenage years, where I learned to sail. I used to own a CC35 and spent years in the San Juans tooling around. I know the area backwards.

      No, no transaction tax. Canada has the largest bubble in the world, more because of free money than anything else. GST is a consumer tax, so it’s better for lower incomes people. It’s all we have here in Alberta – no provincial tax (all the other provinces have a 5-10% tax on top of the 5% GST).

  • Patrick May 18, 2016, 9:22 am

    Thank you for that very informative post on the real estate cycle I just came upon it are you still calling for a downturn into about 2020?…thanks again & best regards

    • Peter Temple May 18, 2016, 9:33 am

      Hi Patrick,
      I believe the downturn is imminent – this year. The bottom around 2020/21.

  • Kevin August 11, 2016, 3:28 pm

    The Canadian housing bubble is still growing as foreign money is still coming in Ontario and BC except Vancouver for now. And Feb and other central banks keep pumping money to maintain the stock markets at all time high to get Hillary Clinton elected. Do you still believe the Canadian housing bubble will burst any time soon without any further government intervention? Thanks.

    • Peter Temple August 11, 2016, 3:36 pm

      Hi Kevin,
      Well, I don’t believe the connection between banks and Clinton, as International Bank of Settlements (the ones behind all this mess) aren’t creating more debt worldwide in the name of Clinton. Quite frankly, they’re done and the market knows it. Look for a top in the US by October. Every other market worldwide looks to be ahead of the US in that regard (and Canada just follows along).

      Credit is starting to dry up. It won’t be long at all before the banks start getting worried about mortgages – it’s already happening here in Western Canada. Banks are starting to pull in loans. I know that personally from acquaintances who are going through the exercise.

      I wouldn’t expect the real estate market to last beyond October, either.

  • Kevin August 15, 2016, 1:59 pm

    Hi Peter,

    Thank you for your reply. I know it sounds like a conspiracy, but it’s true that bankers from Wall Street want Clinton, not Trump, to get elected. And plus Fed and their Plunge Protection Team don’t want Trump either. Other central banks don’t want see another black swan event like Brexit. So they will do whatever they can to pump more liquidity into the market just like what Bank of England did i.e. to cut the interest rate to release more credit to the market.

    I know it’s very easy to get mortgages (e.g. 2 year fixed is at 2.08%) from the big Five in Toronto right now. And Bank of Canada still has some room to release more credit into the market since Canadian economy is lagging showed from last report. What’s your thought on this? Thanks.

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