Australians really should take note of what happens abroad, since the US leads the UK, which in turn leads Australia in and out of the real estate cycle.
Back in February, 2015, it emerged hedge funds had been taking out short positions against stocks focused on the London housing market.
The funds were shorting London’s largest house builder, Berkeley Group Holdings [LON:BKG], and UK property website Zoopla Property Group PLC [LON:ZPLA], in the belief that the London residential property market had peaked and was headed for a downturn.
First, here’s the chart of London’s largest house builder, the Berkeley Group.
The Berkeley Group weekly chart
Source: Market Analyst
You can see that the long term trend has pretty much been up all the way to early 2016. It’s low percentage trading, against the trend.
Here’s the chart of property website Zoopla Property, another of the companies mentioned being shorted in early 2015:
Zoopla Property weekly chart
Source: Market Analyst
The hedge funds got the trade completely wrong. Zoopla Property is now into all-time new highs. That’s a stock you want to be long on. It’s breaking over all prior tops, the trend is clearly up.
Here is where the Cycles, Trends and Forecasts knowledge of the real estate cycle is a real advantage to your trading on the share market. The share price of both these stocks went up, and this is precisely what the real estate cycle predicted would happen.
We are led to believe that, because fund managers control so much money, they must know what they are doing.
However, when we bring up the charts we learn that hedge fund managers are just taking guesses on what they think is going on. They clearly have no knowledge of the real estate cycle, or they would not take a short position against 200 years of repeating history.
House prices in England and Wales have experienced the fastest year-on-year rise in 17 months. Values are up 8.9% since April 2015, and nearly 50% compared to 2009.
In London, house prices rose 11% year on year in April.
Average property prices in the capital have now topped £600,000. In 2009 the average house price in London stood at £321,917.
Meanwhile prices have hit record highs in nine of the 10 regions in England and Wales. This is the first time this has happened in the same month since the height of the boom in 2007.
House prices can only rise like this if there is some confidence in the economy and the expectation that you’ll still be in a job this time next year. The overall trend on UK unemployment is down, coming off highs of 8.4% in October 2011, to be currently around 5.4%.
Hedge funds making the wrong calls against property is a consistent pattern we have followed for years. Every other week some fund manager is calling a property collapse. No one comes out and suggests what might push property prices higher. The extraordinary infrastructure spending and technological innovation are a couple factors that quickly come to mind. It all adds to the value of the land.
Despite all the odds, and calls for property collapse, house prices continue to go from strength to strength in the US, the UK and Australia. There is plenty more strength to go.
Overlay the structure of the real estate cycle over everything you see and read. Combine that with some basic chart reading, and you’ll be in the top 1% of investment knowledge. Nobody else does this.
Knowing the real estate cycle is your secret weapon in markets. It has been repeating for more than 200 years now. To make it work for you and time it all to your advantage, go here.
For Money Morning
Ed Note: This article was originally published in Money Morning.