The “18-Year Real Estate Cycle” Ends in 2026 (What Now?)

0:00There's a prominent theory originated by real economists, not just rogue YouTubers, that the real estate market runs in 18 year cycles. And at the end of each cycle, there's a crash. And according to proponents of this theory, it accurately forecasted the 2008 crash. And now in 2026, exactly 18 years after 2008, the cycle is coming to an end yet again. Today on On the Market, we're digging into the 18-year housing cycle theory. And what, if anything, it can tell us about the future of real estate.

0:41Hey, everyone. Welcome to On the Market. I'm Dave Meyer, Chief Investing Officer at Bigger Pockets. I'm also an investor, an analyst, and these days I find myself a housing market theory fact checker. And today I'm digging into a theory about real estate markets that has existed for almost a century. And according to proponents, accurately called the last two real estate downturns in 2008 and previously in 1990. The theory is called the 18-year housing cycle, and it is true that one of the big proponents of the theory, Fred Harrison, a British economist, actually called the 2008 housing crash in 1997 a full 11 years before it happened.

1:29So naturally, because of that accurate prediction and some economic research into the topic, people are rightfully wondering if we're about to see the big decline at the end of this cycle. After all, it is now exactly 18 years after 2008. And there are some very famous, very popular YouTubers, people on the internet who talk about economics and housing. And they're pointing to this data to support their forecasts about housing market activity in the coming years, most notably saying that we're due for a crash. And it's not just people on YouTube. Even the Cato Institute talks about this. And I saw it actually being discussed on a Harvard University website.

2:11This theory has some legs. So today on the show, we're digging into the 18-year housing market theory and breaking down what it can and cannot teach us because, spoiler here, there is a little of both here, in my opinion. It's not all right. It's not all wrong. But there's a good amount that we can learn and take away from this research. So today on the show, first we're gonna just cover the theory itself. Then we'll talk about how it came to be, its track record in predicting cycles, what proponents say and detractors say, and then I'll give you my own personal opinions about this theory and what can be learned from it.

2:47Let's dig in. All right, so here's the theory. The 18-year housing cycle theory goes a little bit like this. Land is finite. You can't make any more of it when demand goes up, which makes it prone to speculation. And when there is speculation and people are pouring money into land and real estate, eventually prices outrun incomes. You might notice that is going on right now, right? That does happen. And then when no one can afford land or property anymore, the bubble pops. So that's the basic logic behind the theory, but let's dig into sort of the different phases of the cycle that exists. At the end of the previous crash, that is when the next cycle starts.

3:31This is when land prices are cheap, right? This is the beginning of the cycle where things are really inexpensive. And that affordability is really what starts a recovery process. People can afford property again. They start buying things. Vacancies on rented land start to fill up. Banks start to feel a little bit better about things. Credit starts to loosen up so people can buy a little bit more and more. And as this is happening, developers see that things are getting better and they start to build. They see that the cycle is starting again and they start to add more inventory. They start to develop land.

4:10We see this all the time. According to the theory, this takes about the first seven years of the 18-year cycle. You're seven years in, developers are starting to build. And at that point, there's a little dip, according to the theory, right? Seven years in, people are saying, ah, things have been growing for a while. Time to pump the brakes a little bit. And you see a dip in prices, a dip in activity, not quite, but roughly halfway into the cycle. But then after that little dip, this little pause that goes on, the theory says that there is an explosion. It's sort of this boom stage where for another seven, eight, nine years, there is just massive speculation.

4:50People are just pouring money into the market. You sort of lose touch with the fundamentals. Prices go absolutely insane. And then after many more years of that, about 14, 15 years into the cycle, according to the theory, prices become unsustainable and then they crash. And that's the cycle, right? This cycle happens on repeat every 18 years, according to this theory. And it sort of makes sense, at least logically, right? It actually is, in my opinion, quite similar to research that exists and theories about markets and economic cycles in general. This isn't, in my opinion, super unique to real estate.

5:30If you look at just the business cycle in general, you see a relatively similar pattern. Each cycle starts at the end of the last one, at the crash period. There is an expansion, then there's a peak, then there's some sort of recession, and the market starts all over again. But this theory goes beyond just the general business cycle and claims to at least have more specificity. The theory has actually existed for quite a long time. It was first introduced by a guy named Homer Hoyt. He was an economist at the University of Chicago. And back in 1933, he released a paper after studying land prices in the Chicago area from the 1800s up until 1933.

6:14But since then, even since the 1930s, this theory has prevailed. It has been carried on by other economist, a guy named Fred Fulvery, used it to make some accurate predictions. And most recently and most notably by an economist named Fred Harrison, who forecasted the recession of 1991, eight years before it happened using this theory. And he also famously called the 2008 housing market crash back in 1997. So this is why the theory has so much legs right now is that this guy has called the last two downturns, you know, 1990, just for reference, was a lull in the housing market. Prices did go down a little bit.

6:55Obviously, we all know what happened in 2008. But this guy, Fred Harrison, has been using this theory and has predicted the last two crashes. And so that's why people are paying so much attention to this right now. Now, I should mention, and we'll get to this more, that this guy, Fred Harrison, does have a new book out and he predicts that peak housing is coming in 2026, which is why, again, people are talking about this right now. Now, of course, me being me, being a data analyst, I did not just want to take everyone's word for it. I wanted to actually go and find the data about these cycles and see if this pattern actually exists for myself.

7:36And I did find the data. Basically, it goes back to 1818 was the first time we saw this data that land peaked. Then again in 1836, exactly 18 years later, we did see land peak again. In 1854, exactly 18 years later, we saw it peak again. Then the numbers go off a little bit, but it's still roughly 18 years, give or take a year or so. We saw it again in about 1872, 1890, 1908, and then in 1925 again. So when you look at that, it's kind of compelling, right? Like you look at this and it's pretty darn close to 18 years for about a century. Now, from 1925 to today, though, the last hundred years, the data is a little less compelling.

8:24So there really wasn't a peak in land pricing and it doesn't follow the cycle at all in the 1940s. If it was 18 years exactly, you would have seen this happen right in the middle of World War II. Now, proponents of this theory say that the war sort of threw the cycle off and then it started again in 1973. But as we'll talk about later, that is a 50-year gap where the cycle does not repeat. But in 1973, land prices did peak again and they did peak again in 1989. That was 16 years, but proponents of the theory again say it's pretty close and then we saw it again in 2006. I know people say 2008, that's when the financial crisis happened, but land and home prices actually did peak in 2006.

9:11It was roughly 16, 17 years again and now we're roughly close to that. But if you believe the theory, every 16 to 20-ish years with the exception of those 50 years from 1925 to 1973, a pattern does repeat. Again, it's not exactly 18 years, but proponents of the theory think that this average is close enough to make these types of predictions. So if you follow this data, it follows that a crash would come right now. And it has somewhat accurately predicted the last two crashes. Now, there's a lot to break down here, but before I give you my personal take on it, I want to share with you some other research about what other experts say about this, both in support of the theory and against this theory.

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12:23Welcome back to On the Market. I'm Dave Meyer. Getting into the 18-year housing cycle. We're talking about this because it seems to be a lot on YouTube. It's in the BiggerPockets forums and the communities right now. People are talking about this. And I shared before the break the history of the theory and some of the data that does show that going back 200 years, there is some evidence that there is a pattern that repeats somewhat regularly. There are some exceptions. It is not perfect data, but there's enough that we should break this down. So let's look at the arguments for and against this theory.

12:57And we're going to start with the arguments for. I looked hard for a lot of evidence of it. And basically, the main thing, the main piece of evidence that people point to is the prediction of the 2008 crash. This is what proponents say over and over again is the reason that there's going to be a crash in 2026 because it was an impressive call. I mean, if you called that in 1997, that seems like you're an oracle. You had the crystal ball that we all talk about because you kind of nailed it. And people think that if they predicted it once, it will happen again. The other piece of evidence that people point back to was that it really was fairly accurate.

13:39There was a regular cycle of land values peaking and crashing in the 1800s. That part is true. If you look at 1818, 1836, 1854, and so on, it was pretty darn close to 18 years for, honestly, about a century. that pattern really did exist. Now, using that pattern and frankly, that pattern alone, Fred Harrison, the proponent, the guy who made those two calls, is saying that there is going to be a crash in 2026 and he said it will be, quote, worse than 2008. So that's basically the theory for it. What about the arguments against it? Well, there are a couple. The main ones are, number one, The giant gap in evidence from 1925 to 1973, it's a pretty big gap, in my opinion.

14:30That's nearly 50 years without evidence of the cycle. Now, proponents point to World War II as the reason for that, but it is still, even if you believe that, that's a long time without the pattern repeating and without, frankly, a lot of evidence. Proponents say that it started again in 1973. That's not really true. There was a peak in 1973, then it kind of peaked again in 1979. And so that was only a six year gap. Now, there is debate among proponents about if this happened and whether it happened. But basically, from what I found, they can't really explain it in any convincing terms. The next argument against it is that it's not precise.

15:13It's not actually exactly 18 years. For a couple of years in the 1800s, it was really 18 years. but it's kind of just an average, which opponents say defeats the entire purpose of the measurement in the first place. Because if you're using this to make investing decisions or to predict the cycle, the difference between 15 or 16 years and 20 years kind of matters, right? If you get out of the market too soon, you get into the market too quickly, kind of defeats the point. Like, imagine someone saying that the stock market crashes eight years and you acted on that and it didn't turn out. They said, oh, well, actually, that's just an average.

15:49You know, sometimes it's five, sometimes it's 10. Kind of loses the purpose, right? Like, what good is it if you cannot actually use it to make investing decisions? It kind of doesn't matter. Another argument against it is that the theory does call for mid-cycle dips, and that didn't really happen this cycle, right? If prices crashed in 2008, they bottomed in 2011, you would have expected some dip in housing prices during the 2010s. There was a little bit for like kind of a minute in 2008, but not really according to this theory. So it didn't really hold up there. So those are the arguments for and against it.

16:26And honestly, you can have your own opinion about this. There's no right or wrong here. It's just a theory. There's no law here. So I will give you my opinion because I spent a lot of time researching this. And basically where I come out on this is there are some things that we can learn from this cycle, but not everything. For example, will nominal home prices peak in 2026? And by nominal, I mean non-inflation adjusted prices. This is what you see on Zillow or Realtor or whatever. That's a nominal price. Will they peak in 2006? Yeah, I think so. I've said that for a while now. I actually think we've been in a correction for a little bit because real home prices have been pretty flat.

17:09But amazingly, I actually do think the theory is probably going to be pretty close on this one. And we're going to see nominal home prices peak for this cycle in 2026. That shouldn't be news to you. If you listen to the show, I've been saying it for a while. I expect prices to be pretty flat this year. I don't expect them to go up if they do a little bit. And if anything, I'm leaning on the side of one, 2 % nominal home price declines this year. And so the theory, amazingly somewhat, I think might be kind of accurate on this. That is one big part of this to pay attention to. In general, I also agree with the idea that land is finite.

17:51Then speculation does happen in the housing market. That absolutely does happen. There is this term, irrational exuberance, that does create asset bubbles. It's usually fueled by debt and corrections do happen because people start overpaying for things. This is just true. If you look at history, asset bubbles do exist. They do happen in cycles, but they're not really unique to real estate. These cycles exist in most debt back markets. They certainly happen in the stock market. We even see them in art markets or collectibles markets, right? These kinds of cycles do exist. And that is something that we can learn from.

18:29Actually, if you know Jay Scott, He's a regular contributor to the show. He's written a lot of books. I co-wrote Real Estate by the Numbers with him. He put out a great book, Recession-Proof Real Estate Investing is what it's called. And he talks all about the business cycle and how there are different cycles in real estate and how what you should be doing as a real estate investor should change based on where we are in those cycles. And I 100 % agree with that. If you're in a recession, you invest differently. If you're in an expansion, you invest differently. If you're in the peak or the trough, you have to do different things in your investing decisions based on what's going on around you.

19:09That's kind of the whole premise of this show is that we are talking about what's going on in the market. We're talking about data and economics so that you know what to do with your investing, with your portfolio based on where we are in the market cycle. I highly recommend if you have not read that book, it's a really quick read. It's a pretty slim little book. If you just want a primer on how to behave in different parts of the market cycle, check out Jay Scott's book, Recession-Proof Real Estate Investing. I highly recommend it. You can get it, BiggerPockets, Amazon, wherever. So those are two things that I take away from the theory.

19:43Cycles are real. They absolutely are. And it might be right this year, right on 18 years. If you time it from 2008 to now, it might be right. Peak prices actually were in 2006, so I think we're about 20 years out. But proponents of the theory say that this year is going to be the time that it corrects. And I think we are already in that correction. So I do agree with that again. That said, I do not buy the idea that real estate works in precise cycles of exactly or honestly, even roughly 18 years. Economics just don't really work that way. It ignores the human element of the market. It ignores geopolitics.

20:23It ignores government intervention to help prop up the economy. And it ignores new policies that exist and are always being introduced into the market. It just doesn't happen like that. Like even if you look at theories of recessions, right? A lot of people say that a broader economy operates on a seven-year cycle. And that is the average. But guys, an average is a conglomeration of tons of data. There are years that it's five. There's years that it's 11. There's years that it's two, right? Like we just like, that is an average and an average is not a forecasting tool. You cannot say because the average has been, you know, there's been a recession every seven years on average that is going to happen exactly seven years from the last one.

21:10It doesn't happen like that. Just look at this. I mean, yes, we kind of in theory had a recession in 2020, but from the time the last one started, that was 11 years. Some people thought we were in a recession in 2022. Some people think another one's coming this year. The reality is you actually have to look at the evidence on the ground that is going on in front of your eyes to make predictions. You cannot just say it happens like clockwork every seven years. I think everyone logically understands that it probably just doesn't work that way. And if you break down and examine this theory in more detail, it kind of breaks down.

21:50Look at the evidence since World War II. There is this massive gap between 1925 and 1973, right? Like that's nearly 50 years where the cycle did not repeat. Then from 1973 to 1989, the next cycle that proponents of this theory cite is only 16 years. It's not 18. Then the next one is to 2006. People call it 2008. But again, housing peaked in 2006. That was only 17 years. And now we're in 2026, 20 years later, and there hasn't been a crash. Yes, there is a cycle, but it is not precisely 18 years. And since 1925, it's actually never been exactly 18 years. In fact, the only real evidence for a precisely 18-year cycle actually comes from the 1800s.

22:42Just let that sink in for a little bit. It's from the 1800s. I think we can all agree, right, that things have changed a little bit since then. We are no longer an agrarian economy where land speculation drives the real estate market. There are still some patterns that exist, right? Property still has speculation. Absolutely, I'm not arguing that. But land speculation, which they cite in the 1800s as the core of this theory, it's not really what's going on in the market. Back then, we didn't have a central bank. We didn't have long-term fixed rate debt like a 30-year mortgage. We didn't have a fiat currency.

23:21There are so many differences between the economy today and the housing market today and what was going on in the 1800s. Frankly, I don't really think that data is relevant anymore. It's kind of like if someone started telling me that at 38 years old, that's how old I I had reached my full life expectancy in the United States because that's what the data from 1850 told us. That was life expectancy in the 1850s. But I don't take that too seriously because just so much has changed with the medical system and reality, just like so much has changed with the housing market and the economy. We can't really rely on data and patterns from the 1800s.

24:04So much has changed. That data was good when it existed back in that kind of economy. In that reality, that data did make sense. If I was sitting here in 1880 and someone said, hey, there's an 18-year housing market cycle, I might take it more seriously. But in 2026, I am not banking my own real estate investing decisions based off of data from the 1800s. OK, so that's one thing. The data is fuzzy at best. Next, let's talk about real versus nominal home prices. This is my favorite thing to rant about recently because it's important. But basically, people are saying that housing prices are going to crash or peak this year and start declining.

24:46In nominal terms, that might be true, like I said. But as an analyst, what I try and look at a lot is real home prices. This is inflation-adjusted home prices. And when you look at it that way, the cycle actually already ended. Home prices have not been going up in real terms for the last three years. In fact, if you look at it, home prices have been pretty flat for the last three years in real terms. Now, I know you have been seeing prices rise on Zillow and Redfin because those are nominal. They are not doing inflation adjusted terms. But if you do it the way that I think you want to, if you are predicting cycles, right, for you as an investor, if you want to look at things in nominal terms, go ahead and do it.

25:27That makes total sense. But for predictions, if you actually look at the way real estate cycles works, and trust me, I have. I do all the time. If you look at the way cycles work, real home prices, inflation adjusted home prices are a much, much, much better predictor of where the cycle is than nominal home prices. And if you look at that, we're in the flat part of the cycle. It actually ended three years ago. That's another reason I don't really buy this is that it uses nominal home prices, which doesn't really tell you the true, genuine change in home prices that I think we as investors need to be paying attention to, because that's where the alpha comes from.

26:09That's where you actually get these huge gains in wealth and value is when real home prices change. And this uses nominal home prices. One other thing I just want to mention is that back in the 1800s, it was a much weaker federal government. They were not as interventionist in economic cycles as we are now. For better or worse, both sides of the aisle do this. It has become politically untenable to have a recession or especially a housing crash like that is something that politicians will avoid at all costs. They will implement policies and stimulus and quantitative easing or whatever they got to do to try and keep these things going up.

26:48And so that is another reason I don't really buy into this theory is that we just have a more interventionist government than we had when this data was accurate. And so that's another reason to think that the cycle working on perfect 18-year increments is probably not true because the government is devoted to extending that cycle as long as possible. I don't personally think they can do that forever. I think it actually increases the long-term probability of bubbles and crashes, but that is just what they're doing. I don't think it's a good idea, but that is what they do. So that's my general take on the theory.