Investing 101
20 August 2023 | Momentum Realty

The property cycle

While we don’t prescribe to the idea that there’s a ‘right’ time to invest in property, that doesn’t mean that the property cycle doesn’t impact your ability to buy or hold a property. So, it’s important that you’re aware of what each stage of that cycle is, so you know what to expect.

The four key stages of the cycle:

There are four key stages to a property cycle: the peak, the downturn, the trough and the upturn.

At its peak, house prices are at their highest due to high buyer demand outstripping supply.

Alas, all good things must come to an end and at some stage, buyers will drop out of the market. With less demand, sales will slow, and prices will slowly start to come down. Confidence in the market also tends to drop. This is the downturn in the market.

The trough is where we see house prices start to stabilise– they’re not dropping any further, but they’re not rising much either.

At this stage, confidence starts to come back – buyers feel that prices won’t drop any further and feel safer making the purchase. As more buyers return, demand will slowly start to push the prices back up and the market will once again make its way towards a peak.

But it’s your ability to hold the investment through the cycle where the benefits lie.

Of course, property cycles don’t exist in a vacuum, and are influenced by other economic factors like interest rates, government policies, consumer confidence, and immigration – just to name a few.

During the downturn of the market you’ll experience:

  • Falling real estate value
  • Falling share prices
  • Falling commodity prices
  • Tighter bank lending
  • Falling yields
  • Oversupply of property
  • Rising interest rates
  • Lower sales volume / prices
  • Falling construction

While in a recovering market you’ll see:

  • Rising real estate values
  • Rising commodity prices
  • Falling interest rates
  • More relaxed bank lending
  • Rising yields
  • Undersupply
  • Falling interest rates
  • Rising sales volume/prices
  • Rising construction
  • Rapidly rising prices
  • High auction clearance rates

How the cycle impacts purchasing prospects


At the peak of a property cycle houses tend to be at their most expensive due to high demand and low supply. Competition will be fierce, so you’ll need to be sure of what you’re needing to purchase and what your criteria is when you enter the market.

While you’ll need a higher deposit to secure a deposit, interest rates will be lower making it easier to service the loan.

This is good as you’ll likely experience lower short-term yields as rent has not kept pace with house prices.


At the trough of the property cycle houses tend to be at their cheapest.

While your mortgage may be lower, interest rates tend to be higher, making the property more expensive to hold. On top of this, obtaining lending is made more difficult through higher test rates, and the top-ups are likely to be higher with higher mortgage repayments.

And if you’re older, it can be harder to obtain lending due to serviceability criteria.

But, if you’re able to find a property that fits your criteria and are able to hold during this tough time, the pressure is likely to ease as the housing market recovers.


Share this Article

Want to invest in property? You’ve come to the right place.

While property investment may seem simple from the outside, there’s a lot that goes into buying the right property and making sure you can hold it through the fluctuations of a property cycle. In this guide, you’ll find everything that you need to know about what makes property such a powerful investment option, and how to make sure you buy the right investment property to meet your financial goals.

Click here to download the New Zealand Property Investor Handbook by Momentum Realty.