Inflation and property prices

[chupachup]

Question from a newbie here.....

I have a graph showing CPI since 1911 and it's 'best sine curve fit' indicates that CPI is due for an increase, and probably a decent, but steady one at that over the next 20-30 years (up to approx 8-12% figure)

I'd appreciate hearing of people's knowledge/experience of the effect on property prices that higher/increasing inflation has...

[Aceyducey]

chupachup,

Traditionally property prices have on average increased several % above CPI.

Remember that property prices are included as a portion of the CPI calculations.

BTW I'd be interested in knowing your sources - a 12% inflation rate is VERY high and I'm surprised that anyone is attempting to predict it that far out.

Cheers,

Aceyducey

[chupachup]

Hi Acey,

Thanks for that.

The graph was in a recent edition of API. I don't think they actually predicted it would get to 12%, that was more my seeing the last three peaks (9%, 10% and 13%) and assuming the next will be in that vicinity too, judging from the past 100 yrs of data,... historical statistical trends an all that....

[chupachup]

I've attached copy of graph, don't know if it worked... newbie remember!

[Aceyducey]

Worked fine chupachup...

But I don't see the predictive bit.

Certainly there is a higher high & a higher low across the two cycles counting from the 1930 low point and using the Accumulated CPI blue line.

However the line by itself is only a single point of reference.

I'd like to see this matched with interest rates & to cross reference it with housing affordability before making statements about inflation 20 years out.

It would also be good to cross-reference it with global GDP & average inflation.

Cheers,

Aceyducey

[chupachup]

hmmm so there you have my inexperience showing.... :rolleyes:

Lack of knowledge aside, I should've known better than to see one graph alone and jump to conclusions, without considering other factors and comparing with other data, as you say.

yours,
chupa 'learning everyday' chup

[Mikhaila]

Hi Chupachup,

If you search the forum for “Bill.L” posts you may find some answers regarding property investment during high inflation time. As Acey mentioned however, using CPI along is rather useless to predict RE price movements. I think though you have done well with your reading of API graph and subsequent prediction. I agree, that CPI may hit 8-12% level in the next 20-30 years. It is rather long time and I easily put my money on this kind of prediction, as the probability would be heavily on my side. Also, I am fairly confident that good properties in decent areas of major capital cities in Australia will at least double if not triple in the same time frame even from the price level we are currently at.

M.

[chupachup]

Phew, thanks for the encouraging agreement! :)

I'll look for those Bill.L posts too, ta...

Cheers.