#302: Can You Predict Property Market Recoveries? Property Cycles & Mean Reversion – Is Melbourne A Hidden Opportunity or a Risky Bet?
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#302: Can You Predict Property Market Recoveries? Property Cycles & Mean Reversion – Is Melbourne A Hidden Opportunity or a Risky Bet?
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About this listen
In this episode of the Property Trio, Dave, Cate and Mike delve into the concept of mean reversion in property investment, particularly focusing on the Melbourne market. If a market experiences a prolonged flat or declining period, it should eventually revert to its historical trajectory? Dave explains the theory of mean reversion, and its implications for property prices.
"One month of data does not indicate a trend" as Dave correctly states.
The Trio look at some examples where mean reversion has actually played out in property markets. Dave circles in on Sydney's property market pre and post 2000 as a textbook example of a city that exhibited mean reversion. Despite a challenging (and long) period of stagnation, Sydney did bounce back and 'resumed' it's historical trajectory.
Mike cites the Perth market, and specifically, the cooling of this city's capital growth sprint following the mining industry boom. Did Perth demonstrate that the mean reversion theory didn't work? And as Mike ponders, how long does it take for mean reversion to kick in?
Show notes:
Mike shares some of his data on specific suburbs in Melbourne that exhibit significant growth gaps and the Trio consider the reliability of this analysis for selecting performing markets. Mike highlighted the local government areas that have demonstrated significant growth gaps, but how much can investors rely on data alone? Cate applies her local knowledge and offers some explanations for some of Mike's data findings. And Dave considers the growth gap and the dollar value shortfall for each of the picks in Mike's list.
"Data is a tool. It has strengths and limitations."
Why haven't some of the bluechip suburbs reverted to the mean? The conversation highlights both successful and cautionary examples of mean reversion, providing insights for investors on potential opportunities and risks in the current market.
The Trio discuss the implications of market predictions, the significance of blue chip locations, and the impact of government policies on property prices. The conversation also highlights the importance of understanding economic indicators and the need for investors to be selective in their strategies. The Trio emphasise that while mean reversion is a powerful concept, it is not guaranteed, and investors should seek local expertise to navigate the complexities of the market.
Show notes: https://www.propertytrio.com.au/2025/03/24/mean-reversion/
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