Never underestimate the power of momentum

Have you ever look back at property market movements and wondered exactly why they happened? Have you ever delved deep into the minds of investors to see what made them change their mind and switch markets? If there is one thing which moves markets it has to be momentum.

Fund flow follows momentum

Momentum is often the catalyst for a change in direction of particular markets and once the momentum picks up fund flows will follow. This can have a major impact upon not only prices but also expectations and the way in which investors and sellers react. When you bear in mind the worldwide real estate market is worth billions upon billions of dollars can you imagine just a small shift in that amount of money and the impact it would have on a relatively small market?

An example of momentum

Dubai is often written about as a stereotypical rise and fall in the worldwide real estate market. Prior to the turn-of-the-century this was a market which relatively few people took any interest in and then suddenly momentum began to build and fund flow followed. Very quickly the market became the “in thing” and both short-term and long-term investors were fighting amongst themselves for a slice of the action. Initially this pushed asset prices to levels which were unsustainable in the real world but in what is known as a “real estate bubble” this momentum not only impacted the prices but also expectations.

When the fund flow is reversed

As quickly as markets come into vogue they can be dumped by investors looking for the next big buck real estate. Again, in many ways Dubai is a prime example of this because even in the midst of a worldwide economic crisis back in 2008 there were some experts suggesting the market was bombproof and would keep on moving higher and higher. Looking back from a distance this constant upward pressure could only end in one way, a dramatic collapse in real estate prices across Dubai, a catastrophic impact upon the local economy and major supply issues in the money markets.

There is perhaps no better recent example of the way in which momentum and fund flow can impact a market and turn it on its head very quickly.

Using momentum to increase your returns

Momentum in the real estate market is very similar to that in the stock market where sometimes down and out stocks and shares will suddenly find favour amongst investors. They will be the classic crossover period where sellers and buyers are matched and then the buyers take control pushing prices higher and higher with sellers reluctant to cash in their chips with the market up. Does this ring any bells?

The trick to using momentum to maximise returns is to know when to jump aboard and went to cash in your chips. As we have mentioned time and time again, property investment should be seen as a long-term strategy but if there is the opportunity to take a short-term profit by all means consider it. Spotting the down and out real estate markets prior to them returning to vogue is a skill which very few people possess, however, if you do your research and stick to the facts and figures, there is every chance of a good return in the longer term.

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