The Property Cycle: Understanding Where We Are and What Comes Next.

The property cycle is one of the most studied and, paradoxically, most frequently misinterpreted phenomena in economics. Its broad structure is well understood: rising prices attract developers, who increase supply; when supply exceeds demand, prices fall; when prices fall sufficiently to clear the excess, the cycle restarts. What makes the property cycle difficult to trade — and easy to misread — is that it operates over long periods (full cycles typically run 15–18 years), varies significantly by geography and property type, and is subject to structural interruptions from interest rate changes, regulatory interventions, and macroeconomic shocks that can extend or compress individual phases without altering the underlying dynamic.

The current position of the global prime residential market is, in aggregate, mid-cycle with significant regional variation. The United States experienced a sharp correction in 2022–2023 driven by the most aggressive interest rate hiking cycle since the 1980s, but the supply constraint — driven by existing owners who locked in 3% mortgages in 2020–2021 and are unwilling to sell at current rates — has prevented the oversupply that would typically characterise a mid-cycle correction. The result is a market where prices have fallen from peak by 8–15 percent in most prime markets (more in some tech-hub cities) but transaction volumes have collapsed, and the fundamental supply-demand imbalance that will drive the next upswing remains intact. The consensus view among real estate economists is that the inflection point for US prime residential will occur 12–18 months after the Federal Reserve begins its rate-cutting cycle in earnest.

In the UK, the story is similar in some respects but shaped by the specific structure of the British mortgage market (predominantly variable rate or short-term fixed, which transmits rate increases to existing borrowers much faster than the US 30-year fixed model) and by the severe supply constraint created by decades of under-investment in residential construction. UK prime London has performed better than the broader UK market: the international buyer pool that supports pricing above £5 million is less sensitive to UK mortgage rate conditions than the domestic buyer who dominates the £500,000–2 million market. Dubai continues to exhibit late-cycle characteristics: price growth of 15–20 percent annually in 2022–2024, a large new supply pipeline under development, and a buyer profile that is increasingly speculative rather than user-motivated. The risk of a correction in the 2026–2027 period is, in the view of several credible observers, meaningfully elevated.