Markets go up and markets go down it’s called the property cycle! A lot of investors don’t like buying at the top of the market. So how can you tell it’s close to the top?
Here are five signs that will tell you the market has reached (or is close to) its peak.
1) There’s been substantial growth already.
I guess that goes without saying but if the markets have gone up substantially, then it can’t go on. What goes up must come down.
I have always found this funny, but even though we all know upwards trends can’t last forever, it would seem that institutions in the market, especially mortgage lenders kind of like wish the market would. They’ve seen good profits, and their shareholders want that to continue.
I’ve not seen many markets with consistent double-digit growth over more than 2 years. So, if you’ve already had 20% growth last year then you’re probably going to get to the peak at some point pretty soon.
Now, does that mean you’re not going to have 20% growth over the next year? I don’t know but it might be a time to start saving for the crash. Remaining cash rich in those times can be useful when everyone else starts to run around like a headless chicken when the market eventually crashes.
2) High Loan-To-Values (LTVs)
We already mentioned how banks and financial institutions wish that the market would keep going, so when the market does start to turn, these institutions start to see smaller profits. With pressure from leadership and shareholders, banks find creative ways to keep lending money. The number way they do that is by offering higher LTVs.
So when you start to see loans of values of 85, 90, 95, 100, maybe even more than 100%, you should be sure that the market has reached its peak and it’s probably time to change your strategy or if you’re a cash flow investor, follow the same strategy. There are always good deals fgor cash flow investors at any time in any market.
3) Everyone else is buying property like crazy and everyone else considers themselves an investment expert.
Sure it’s pretty easy to call yourself an expert when you buy a property for $100,000 and sell it for $200,000. Riding the market is easy. It takes a real expert to make money when our markets go down or they’re stagnant. When everyone’s buying maybe now it’s time o start thinking about a different strategy.
I’m not saying you should stop buying I’m saying maybe look at a different strategy.
4) Crazy deals from developers and builders.
Just like the banks and financial institutions, builders and developers also want to keep the momentum going.
They see the markets go up, profits are good, and it’s now easy to get money for financing new projects. New developments and projects are planned, but of course, nothing happens immediately.
It can take a few years to get the permission or the planning required to start the development. If the market has started to turn developers now need to offload property… and fast. Deals now abound, and developers are willing to look at anything you throw at them. From Deep discounts to seller financing and crazy deal structures that they would have turned their noses up at just a few years previously.
Now not every developer does that but there are some who do, so keeping an eye out, keeping your finger on the pulse will really tell you if you’ve reached the top of the market.
5) The Media
The media loves to hype it up and when we see the media telling everyone to invest in property and how it’s thing since sliced bread. Well, maybe it’s the top of the market. In fact, you’ll find most people are talking about property investing and how this person has done that deal and made that gazillion dollars in that transaction. Well, it’s all gonna go pear-shaped pretty soon. Those same people who overpaid, got carried away and didn’t do the due diligence, well they’ll be selling soon.
There will be lots of good deals available because when the market crashes we just call that a nice “property sale”.
It’s the same with bananas.
If you like bananas then when they’re on sale you’d probably buy a few more. It’s the same thing with property. When they’re on sale and the markets crashed we like to buy a few more bananas and property.
So those are five signs that you can tell the markets reached its peak.