The booms are easy to identify. But, even in retrospect, the downturns and troughs aren’t as obvious.

That’s why when investing, I combine the traditional ‘investment cycle’ model, with the ‘property cycle’ model (which I’ve borrowed from Economist, Tony Alexander).

Here’s an example of how these two models work together

Take a look at the below to see Wellington’s property cycle, which suggests whether an area is undervalued or overvalued.

See how it's much easier to identify the trends?

This graph is calculated by comparing Wellington house prices with New Zealand house prices.

When the line is going up, Wellington house prices are increasing faster than the rest of New Zealand.

When the line is going down, Wellington house prices are increasing more slowly (or declining more quickly) compared to the rest of the country.

While not a perfect replacement for the 'investment cycle' model. Taken together, they give a good indication of whether it's an opportune time to invest in a specific region.

Right now, the Wellington region appears to be 7.6% overvalued. From the graph, you can see the region is passed its peak. So, there are probably buying opportunities elsewhere in New Zealand.

Why is this thinking important in today’s market?

Prices won’t fall by the same amount everywhere.

One region might see prices dip by 5%, while another cops it by 15%.

Similarly, some regions will see their house prices increase more quickly after the dip than others. After the last property price dip in 2008, Auckland prices fully recovered in 3.67 years, while Gisborne took 11 years.

And if you want to dig deeper, you can find the data for each region on the Opes website.

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