The 18-Year Cycle You Can Bank On

 

I’m a cycles man.

They exist in every aspect of our lives, from our bodies to our emotions… from how we age to how we spend money… from how we interact with others to how our business grows or our careers progress.

There are the demographic and spending wave cycles, which I’ve identified.

There’s the 30-year commodity cycle.

Sunspot cycles.

The four-year election cycle.

The 10-year economic cycle.

The 18-year geopolitical cycle.

Cycles range from 5,000 years to 500 years, 250 years, even cycles as short as a couple of hours.

There is simply NO escaping them, as my exhaustive, 35-year-long research has borne out.

But today there’s just one cycle you should pay attention to. It has the power to make you very wealthy if you’re ready to take advantage as it moves through its next cycle…

I’m talking about the 18-year real-estate cycle that Australian Phil Anderson uncovered.

Here’s a chart, courtesy of Phil, that shows the real-estate cycles public-land sales in the U.S. generated between 1800 and 1900.

See larger image

Is this a clear 18-year cycle or what?

The U.S. was a new frontier and emerging country in the 1800s. The government kept acquiring and selling off lands westward to encourage expansion. It did this on an 18-year cycle with peaks in 1808, 1836, 1854 and 1869.

Major crashes in property prices followed these surges, as did major peaks in the banking system and in stocks.

The greatest crash and depression outside of the actual Great Depression occurred from 1835 to 1843. Back then the U.S. government tried to encourage westward expansion into areas like Ohio and Illinois. It practically gave away land, selling it at super-cheap prices with easy financing.

Of course this led to speculation and buying and flipping like there was no tomorrow.

You can see that when governments manipulate markets, they create huge imbalances… speculation and debt bubbles that then collapse when reality finally sets in. That doesn’t mean that such expansions don’t pay off in the long term, but it does mean they collapse when the speculation and debt has to deleverage after human’s have eaten enough of the free lunch to make themselves and the economy sick.

And this happens over, and over, and over again. So here’s what you need to know…

Phil’s 18-year real-estate cycle has three stages:

Stage #1: A moderate five to eight years of growth.

Stage #2: A five to seven years of exponential growth.

Stage #3: A collapse and downturn that stretches from four to five years.

With the exception of interruption that World War I and II caused, this cycle has recurred like clockwork.

Recent cycles peaked in 1972, then in 1989, and again in 2006.

The bottom of the latest cycle was around 2011.

That means the next growth cycle is ahead.

However, I believe the Fed’s extraordinary manipulation over the last five years has caused another slight disruption in this cycle. Instead of heading steadily up from now until 2026, we’ll see a second bottom between 2015 and 2016.

After that, real estate should slide smoothly back into stage two… where the industry will enjoy growth and prosperity. If you start preparing for this upswing now, you’ll be sitting pretty in a decade.

There’s just one caveat.

Because the Echo Boomer generation is spread more thinly than the Baby Boomer generation was, it will not have that explosive effect on real estate its predecessors had.

So while there is light ahead for real estate – particularly from 2016 onwards – don’t hold your breath for the kind of appreciation we all enjoyed until 2006.

Still… something is better than nothing.

Harry

P.S. I recommend you read Phil’s book. It’s one of the best books ever written on long-term real-estate cycles. You’ll find it here.

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Categories: Economy

About Author

Harry studied economics in college in the ’70s, but found it vague and inconclusive. He became so disillusioned by the state of the profession that he turned his back on it. Instead, he threw himself into the burgeoning New Science of Finance, which married economic research and market research and encompassed identifying and studying demographic trends, business cycles, consumers’ purchasing power and many, many other trends that empowered him to forecast economic and market changes.