One notable comment made in the report is that falling prices are not always followed by an immediate upswing. Modelling by Macquarie Bank shows that residential property values tend to stabilise for two or three years before prices start to rise again.

This modelling supports the general economic principal that there is a natural "floor" with residential property prices. Property owners are generally reluctant to sell property for less than what they paid. In fact most owners expect their property to gradually rise in value over time (which has been proven by median prices doubling every decade in every capital city over the last 100 years). If the property market goes through a downturn, (as in the current market) owners adopt a long-term view and hold on throughout the cycle with the expectation that recovery is a few years away.

If an owner gets into financial trouble they usually do anything they can to keep a roof over their head. Before selling a property, owners get comparable sales from agents to help determine their selling price and make an informed decision. While in the sharemarket prices of shares are known by the minute, properties are traded more slowly and infrequently. Banks typically lend a standard 80% of property value and in some cases are willing to lend up to 100% on property. All these factors help underpin the natural floor in the property market.

Why is this important I hear you ask? If property prices remain resilient and trend upward for the long term, then investors must adopt a long term view and not panic when the market turns. These changes in market cycles provide opportunities to buy well, add value and grow your property portfolio.

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