Reviewed by Jocelyn Watkin on behalf of Landlords.co.nz
This book offers an everyday person's guide to basic economics - the study of supply and demand as it relates to real estate (mainly residential property) - but also considers the ‘wild cards' of fear and greed.
Trass maintains there are several market drivers for residential property and these can be broken into three broad categories:
- Demographics, which determine the level of demand from people in the market
- Financial, which relate to the financial viability of the market for investors (which also determines demand)
- Emotional, which impact on confidence in the market (where these relate to measurable statistics such as number of days it takes to sell a house)
He states that there is also a number of factors that influence supply and demand, but may only have a temporary impact, such as interest rates, ease of borrowing, inflation, number of foreign investors.
Charts and graphs are used throughout the book to illustrate the above drivers and influencing factors.
The book makes a slow start but it is worth persevering with. Once the book moves beyond introducing the concepts of the property cycle, Trass' real estate cycle clock and his opinions on the key drivers and influencers, it gets a lot more interesting. Trass cleverly uses the fear and greed factors to build interest in what he believes to be the best times to buy property (or not) and where.
Using a longer timeline than the 40-year period of most examples would have helped to reinforce the message that susceptibility to fear and greed is not just a recent phenomenon. The chapter on the psychology of bubbles, guest authored by UK writer Peter Waring, provides some insights on why humans continue to behave like this rather than rationally.
However, the graphs, figures and more recent history all provide useful context and will go a long way to help any new investor decide on when to buy property. The chapter summaries were particularly helpful.
More experienced investors may have preferred additional information on the supply and demand factors in other markets (such as shares), which also influence any decision on whether to invest in real estate. However, that would have made the book longer and more complex than it needs to be for its likely audience of new property investors.
The Housing Bubble covers the boom, slump and recovery phases of the property cycle and offers workable ideas on what to do at each stage.
It will be helpful guide to those newer investors who want to know more about Economics 101, the existence of property cycles and some basic principles around property investment. That is:
- the real estate market is influenced by supply and demand
- real estate investment is a marathon, not a sprint
- the potential yield is as important capital gain when considering a purchase
- inflation and deflation have huge impact on the value of a property
- anytime is a good time to buy if the price and location are right.
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