$5.6 million Melbourne Median??? [Archive] - Somersoft Property Investment Forums

natedog

10-05-2005, 02:30 PM

Hey Forumites, with the new median melbourne price of $350k, how realistic do you think it is that in 40 years time, allowing property to double in price every ten years, that the median will be $5.6 million? is this too low, too high or just too far down the track for any real prediction to be made?? i know this may get many varied opinions, but thats what i am hoping for :) just wanna know how much i can leave my kids down the track......so let the opinions flow!!!!!

Thommo

10-05-2005, 02:48 PM

I bought my house in '68 for $10k. In '98 it would have been worth $100k which approximates your doubling every 10yrs. It has since doubled in the last 7, (that is what you would expect) but there was a decade of high inflation in there too.

Inflation is the key and we could easily have seen the last of the low inflation years. Inflation is GREAT for mortgagors!

Thommo

Andrew

10-05-2005, 03:29 PM

My PPOR was purchased (by previous owners) in 1956 for $2400 (1200 pounds), it's
had 49 years since then so should have doubled 7 times.

2^7 = 128

$2400 X 128 = $307200

I bought it just over 2 years ago for $292,000. Pretty accurate so far. It's probably
only appreciated $15000, except for my renovations.

Give it another 50 years (I do intend to still own it):

$307200 X 128 = $39,321,600.

WOW, yes, that does say $39 million dollars. OTOH, I shudder to think what we'll
be paying for a loaf of bread or litre of milk.

What I'm really interested in will be the rental income in 50 years, even if it only
rents for 2.5% of its value the rent will be nearly $19000 per week.

Sounds impossible I know, but I'm merely extrapolating what has happened in the
past.

andy

NigelW

10-05-2005, 09:03 PM

This is really interesting. It stretches the imagination.

What would be good to see those figures correlated with would be:

1) interest rates;
2) Average weekly ordinary time earnings;
3) inflation.

Could one of our stats boffins give this a go? Pitt Street???

Growth correlated to the price of money, average income levels and inflation would give us all a real insight I think.

Cheers
N.

keithj

10-05-2005, 09:24 PM

What would be good to see those figures correlated with would be:

1) interest rates;
2) Average weekly ordinary time earnings;
3) inflation.

Could one of our stats boffins give this a go? Pitt Street???

Growth correlated to the price of money, average income levels and inflation would give us all a real insight I think. Nigel,

Not sure if this goes some way to answering your Q - Why You Can’t Afford a House in San Francisco (http://efficientfrontier.com/ef/405/housing.htm) but I found it interesting.

The bottom line -

Home prices and rents do not exist in a vacuum, and the factors that influence them are blindingly simple: the mortgage rate and the salaries of those in the market. Where these two critical values go, so go rents and home prices eventually.

Aceyducey

10-05-2005, 09:28 PM

While I do feel that property doubling is a long-term trend, always be aware that when you straight line magnify into the future you can end up with highly improbable results.

For instance, the diabetes market is growing at 8.3% per year (http://www.bccresearch.com/editors/RB-158.html). However population growth has fallen to under 1.5% per annum (http://www.alsagerschool.co.uk/subjects/sub_content/geography/Gpop/HTMLENH/pproblem/xkey.htm).

Therefore, by extrapolating these two figures out, at some point in the future, more than 100% of the human population of the world will have diabetes.

High rates of growth are definitely sustainable over a human lifetime, but over a number of lifetimes they tend to normalise.

I'd not expect property to be worth hundred of millions of dollars on average - I'd expect the currencies to have been revalued!

Cheers,

Aceyducey

natedog

10-05-2005, 11:24 PM

Thanks guys for all your thoughts. Thommo, hope you dont mind me asking, but did you ever think that in your lifetime, your 10K home you bought back in 1969 would ever be worth 200 times that ammount??

Just wondering Acey, what seems weird about house prices in the hundreds of millions when you consider whats happened in the above example? what do you mean by a currency revaluation? I like to ask questions :)

Aceyducey

11-05-2005, 12:23 AM

Natedog,

Our currency is not set up to handle people carrying around a hundred thousand dollars to buy a loaf of bread, or hundreds of millions to purchase houses.

Revaluing a currency is a common practice when inflation runs away. All the government does is give the currency a new name, a new look, and makes a ruling that $100,000 in old dollars = $1 in new dollars.

Cheers,

Aceyducey

quoll

11-05-2005, 09:54 AM

Anyone ..

Which was the last country to revalue it's money?
And how did they do it?

cheers
quoll

Mark_B

11-05-2005, 10:13 AM

geoffw

11-05-2005, 10:21 AM

Which was the last country to revalue it's money?
And how did they do it?
I think there have been others since, but Mexico revalued in 1993. There had been a period of very rapid inflation (when I was there in 1987 I exchanged money every day, as the rate kept changing. It was somewhere near 4000 to the US dollar then). At the end of 1993 they removed three zeros from the Peso and called it the New Peso. In 1996 they changed the name back to the Peso. The economy, and the currency, has become a lot more stable again.

When I was married there in 1988, as a part of the ceremony, I promised to support my wife financially, and she promised to look after the money. I did this handing over coins to her. Those coins were 5 centavo coins- there were 100 centavos to the dollar. That makes them of not very much value at all- they were probably of higher value as scrap metal.

Thommo

11-05-2005, 10:35 AM

Thanks guys for all your thoughts. Thommo, hope you dont mind me asking, but did you ever think that in your lifetime, your 10K home you bought back in 1969 would ever be worth 200 times that ammount??

Watch your zeros Nat. That's "only" 20 times :D

And No! I just bought somewhere to live. It was the normal thing to do.

Thommo

natedog

11-05-2005, 10:35 AM

all makes sense to me guys regarding the revaluations of currencies, but i guess what im asking is whether property into the next 40 years will continue on the trend of doubling every 7-10 years :)

wombat

11-05-2005, 11:05 AM

When Australia went from Imperial to Decimal currency in 1966 that was effectively a revaluation.

ABS article (http://www.abs.gov.au/Ausstats/abs@.nsf/0/a62514f23f32cb32ca256f2a00073479?OpenDocument)

The Wiemar Republic (Germany post WW1) experienced massive hyper-inflation that saw the value of their currency plummet. Eventually this led to a revaluation of the currency.

Information on hyper-inflation and some real life examples here (http://www.absoluteastronomy.com/encyclopedia/h/hy/hyperinflation.htm).

Edit - The article mentions that Turkey has revalued its currency this year owing to hyperinflation. 1,000,000 Old Lira becomes 1 New Lira.

Mark

I was in Cyprus a couple of years ago and drove a few times from the South of the island (Greek Side) to North (Turkish Side). The currency the Greek side uses is the Cypriot Pound, which is quite a strong currency, about on par with the British Pound at the time and the Turks had the Lira.

So, shops in the tourist areas on the Turkish side had prices in Cypriot Pounds and then Turkish Lira. - I remember the Petrol Stations had the Petrol for around 45 Cypriot cents per Litre and then the Turkish price squashed up underneath that appeared something like 50000000000000 per litre, I’m exaggerating but you get the picture. Go to a restaurant and look at the menu, everything seemed to be in the millions!

Since this is a property forum – yep – lots of developing happening in Cyprus, lots of it aimed at the Poms.

wombat

lizzie

11-05-2005, 11:08 AM

don't see why not, as it has been the trend since reliable records have been kept.

but, as the other guys have been saying, in a very interesting, roundabout way, the physical value of the house is irrelevant - what is relevant is the comparative value at the time with other requirements of life.

for example ... my current home has nearly doubled in the last five years (yay, more equity to draw down to buy ip's) but so has the price of petrol and a loaf of bread and a litre of milk - so it's all relevant. and before i get hounded - i realise that the price of other items have reduced or remained the same as they were five years ago such as televisions, cars and airfares - but these aren't staples of life.

only have to look at how many people are millionaires now compared to 10 years ago - it's easy to be a millionaire net worth today, but it doesn't mean you are rich anymore - that is saved for the multi-multi-millionaires and above.

of which i hope to join in the next 5 years :D ... lizzie

natedog

11-05-2005, 02:03 PM

ah yes...1 to many zeros..would be nice if it was 200 though :)

Spiderman

11-05-2005, 08:04 PM

ah yes...1 to many zeros..would be nice if it was 200 though :)

And given that wages and the cost of living are at least 10 times (and possibly 20 times) that in 1969, then the real increase doesn't look so impressive.

30 year comparisons (and forward extrapolations) are marred by the record of the last 30 years, where two of the decades included (1970s and 1980s) were marked by high inflation, and the 1990s/2000s (so far) by low inflation.

Who knows what the future will bring?

Maybe one way to measure progress is ownership of X number of 'average houses'. Given housing costs are normally 25% of average income, you will need to own outright a minimum of five to six 'average houses' to have a hope of receiving an 'average' income via passive means (whether you do this or control more through leverage is up to you). Or if yields are too low, work on a wealth of approx 20 times desired annual income.

For convenience, it is probably soon time to drop the 5 cent piece.

More radically, make 10c = 1c, $1 = 10c etc. But this would be a bureaucratic nightmare, have no clear benefits and dent people's egos (as average incomes are now only a few thousand pa even though their value is unchanged).

Rgds, Peter

geoffw

11-05-2005, 09:41 PM

Which was the last country to revalue it's money?
And how did they do it?Not quite a devaluation.

But Afghanistan did have a lot of troubles because of their teller ban.

Thommo

11-05-2005, 10:24 PM

It is said that in roman days one could buy a good suit for 1oz of gold. (Hey: I'm just repeating what I'm told)

Paul Keating may need two oz's to buy his favourite Italian suit today and many of us may use less, (not me, I don't own one) but that doesn't detract from the uncanny consistency in this measure. BY comparison we are talking about a 2005 $1 being worth 5c when today's newborn think about investing if Nat's doubling every 7yrs holds true. (OK SOS, I have been drinking and not about to check for accuracy)

Get real! absolutely nothing can consistantly increase in value greater than long term price/wage inflation, including property.

Short term (next 50yrs) the divergent asset class will not be property. In fact I believe it will revert to the mean. ie Will lose relevant purchasing power.

I am not about to say what I believe will be the one to excel but sure as God made little apples there will be a stand-out investment.

If you think you're smarter than the average bear......... start lookin'

Thommo

pete_w

11-05-2005, 10:53 PM

Hey Forumites, with the new median melbourne price of $350k, how realistic do you think it is that in 40 years time, allowing property to double in price every ten years, that the median will be $5.6 million?

value is what its worth, price is what you get can get someone to pay for it :)

for the long term, i gues you want to focus on the things that will help it increase in value. for me thats land content + (relative) location.

Andrew_A

12-05-2005, 12:30 AM

Thommo

13-05-2005, 08:42 PM

Had a beer with an old bugger tonight (older than me even) and he said that his father bought a property in Syd (I think he said Cambletown. Is that 7miles from the city centre?) for 4,000 pounds in 1918 when he came back from the Great War.

The mantra then was "A land fit for heros" and so it should have been but Soldier Resettlement Schemes saddled these poor souls with mortgages on nearly unproductive rural land. In Queensland it was in the brigalo belt. They slaved their guts out but most lost the battle.

Until today I was unaware that those who bought in the cities were also dudded. Burnie (my old mate) says that his family sold this property in the late '60s for about $8,000. (In an earlier post I told of buying a house in '68 for $10k)

One pound equals $2, ergo for 50 years Bernie's parents had ZERO cap gains. One can only hope that the Defence Housing Scheme of the time gave them a concessional int rate. That subject was not covered.

I deliberately asked for clarification and he restated these figures but one doesn't pull out a recorder. Not good form :D

So if property doubles every 7yrs this property should have sold for $512k in '68. The difference between $8k and $512k cannot be explained by poor buying in '18, poor selling in '68 or poor memory of my witness.

In fact my experience with my "family home" is similar. Between the wars GrandDad bought a beautiful large home RIGHT ON THE BEACH in Townsville. I remember when Mum told me how much he paid I thought it wasn't cheap. In the late '70s when sold it returned just $54k.

To me, these two examples show that there was a whole lifetime when property was an expense (a bit like a car) not an appreciating asset. So lets treat "generalities" with the disrespect that they diserve.

Thommo

lizzie

13-05-2005, 10:24 PM

how many beers did you say you had thommo - few "sp"-s in your post :D

perhaps, like everything in today's society, the cg in properties is accelarating due to lack of time, lack of land and lack of the masses willing to work hard ... accelarating like everything else - a weekend feels like a sleepin, a week off feels like a weekend and a bottle of red just doesn't last like it used to! :o

anyhow, if we are talking figures, my parents bought their property in 1973 for $30,000 (nz, expensive in those days), and sold three years ago for just under 2 mil ... anyone care to do the figures as the bottle of red is making me sleepy.

lizzie

geoffw

13-05-2005, 10:37 PM

Campbelltown (I think that was your suburb- pronounced the same) was probably out in the sticks when they acquired the property, and again when they sold. A place will generally acquire value when there is an increasing demand.

My Granddad made a motza by buying rural land outside an expanding town. The property he bought is now inner Shepparton. He would have acquired a lot more if the experts (bank managers) hadn't told him he was mad.

Thommo

13-05-2005, 11:05 PM

how many beers did you say you had thommo - few "sp"-s in your post :D
Liz, You may be amazed to discover that I can't spell, even when I'm sober.

TWTF Peter admits that life is too short to spell check at any time.

If you can't understand what I said, why should I care.

T

lizzie

14-05-2005, 09:58 PM

anyhow, if we are talking figures, my parents bought their property in 1973 for $30,000 (nz, expensive in those days), and sold three years ago for just under 2 mil ... anyone care to do the figures as the bottle of red is making me sleepy.

lizzie

okay - so after the other half of the red tonight ...

if the 7 year doubling figure is taken as fairly accurate then it shud have taken 42 years for the property to reach the value sold at - instead it only took 32.

must be the old adage - location - although when they bought it was the back blocks of nowhere, and is now "the" place the live in auckland (nz).

interesting but irrelevant.
lizzie :)

Ausprop

15-05-2005, 02:12 PM

This was Barry Pickering's prediction of prices in SE QLD in 2030.

2030:
Average house price: 2.7 million
5.5% yield
$2855/week rent
$11,700/week average income
Rent is 25% of average income
New Cars sell for 450k
Milk costs $18

interesting.... the price of cars in nominal terms hasn't changed for 15 years, in adjusted terms they have fallen (depends on the models of course, I am basing this on the cost of honda prelude and a corolla. I realise Falcons have gone up). The indications for the future are that the Chinese will slash the cost further and quite dramatically, so in real terms you could be looking at a car costing say 1/5th of what they cost 15 years ago. Fits in with the saying about land: they aint making any more of it. They will always find a way to produce a cheaper product though.

---------------------------------------------

Les

15-05-2005, 02:28 PM

G'day Lizzie,

anyhow, if we are talking figures, my parents bought their property in 1973 for $30,000 (nz, expensive in those days), and sold three years ago for just under 2 mil ... anyone care to do the figures as the bottle of red is making me sleepy.

lizzie
Hmmm - interesting. What I CAN add to your thoughts is this:-
My wife and I bought our first home in 1973 in Te Atatu (Auckland). Cost $17,000. Because of world events at that time, which led to a boom, we were offered $25,000 within 6 months of moving in. And, we sold it 7 years later for $45,000. So, given the timing, your parents got a head-start too by buying when they did.

Still, they have done well. Even if their property was worth $45k within 6 months of moving in, it would STILL have only been worth ~$800k 3 years ago(using the "double every 7 years" method). So the difference must come down to either "location", or "buying very well" - or, perhaps, "Selling well"?

What area are you referring to? (Guess - NorthEast beaches?)

Regards,

lizzie

16-05-2005, 07:29 PM

Still, they have done well. Even if their property was worth $45k within 6 months of moving in, it would STILL have only been worth ~$800k 3 years ago(using the "double every 7 years" method). So the difference must come down to either "location", or "buying very well" - or, perhaps, "Selling well"?

What area are you referring to? (Guess - NorthEast beaches?)

Regards,[/QUOTE]

hi les - greenhithe ... between albany, weinuapia and glenfield. was horribly rural (only 2 buses daily) when they bought the 10 acres. now is a very "lifestyle" area and mum sold to a developer (dad killed in flying accident many years before). she's now been buying up big in carterton, where the family orginally comes from and doing very nicely from positively geared property located on the main train line to wellington.

must be where i got the genetics from :) and i am trying to become as successful as her over here in australia

lizzie

lizzie

Les

16-05-2005, 11:23 PM

G'day Lizzie,

Too many years under the bridge. I think Whenuapai is North-West (trying to recall Albany, Glenfield, and Greenhithe - have heard of them all) - still, I'm sure these are on the way to Helensville. And I do recall the trip "up that way" (the hot baths in Helensvile were a "regular" for a time, and so was buying Budapest pickled onions in/around Whenuapai - if my forgettory serves me correctly....)

But, yeah - as Auckland grows, WHERE's it gonna go? Can't go East or West too far, can it?

And TEN ACRES - well, beats the hell out of our little battle-axe (right-of-way section) in Te Atatu. No wonder it went up in value over those years... Anyway, well done to your folks, Lizzie,

Thommo,
To me, these two examples show that there was a whole lifetime when property was an expense (a bit like a car) not an appreciating asset. So lets treat "generalities" with the disrespect that they diserve.
A thought-provoking comment - I recall seeing some DECADES when property went up not at all (looking at someone's link on the forum that showed the values every 10 years for 3 centuries). It seems you see these times might be back upon us? Or is this just caution?

What do you see that indicates these times might be here again? Sure, prices have flattened, but isn't this "normal"? What else is there that you're seeing? Have we hit the "long-term recession" in property again? Or are we discussing a time when two World Wars had decimated so many people that the buyers just "weren't there"? Or had the Depression squashed people's hopes? Are those times REALLY upon us again?

I noted your "short term, 50 year" comment. Interesting..... What else can you tell me of this? It's an intriguing thought. Maybe disturbing too...

Always listening, even if not yet convinced :D

Regards,

Aceyducey

17-05-2005, 08:18 AM

IT's always interesting to look at the long flat periods in property prices as they do make the point that what we regard as almost as a 'law of nature' (that property appreciates) is not actually true.

It's perhaps more appropriate to state that with rising demand, improving living conditions, increasing wealth and the appropriate political system in place, property tends to increase in value over time.

Should populations fall, living conditions deteriorate, wealth decline or certain other political systems be in power, property behaves very differently.

Certainly at this point in time property is 'largely' flat (meaning it's going up in some markets, down in others, sideways in yet others), HOWEVER (and this is the important bit) none of the root causes of property appreciation over time have changed.

Start treating property prices changes as an outcome of geo-economic and political forces and you'll have a better understanding of how the investment class performs.

Cheers,

Aceyducey

plumtree

17-05-2005, 09:29 AM

I am glad you said it Acey, and in a very clear, precise way. Property prices do not relate to a 'rule or law' and really are affected by many factors. At this point in time many adverse factors are finding their way into the equation and a prudent investor should avoid old formulas and make decisions based on current trends. I will be labelled a 'gloom & doom' merchant if I start to list these factors so I will avoid doing that and hope that others can contribute one or two.

My latest property aquisition is a 1bed flat in Melbourne. Grandson read a book and followed all the rules. Grandma figures it was all my fault that this dump was losing money so made me buy it before he went belly-up. My guess is that this place will take years to recover, if ever. My recommendation is to look around and keep up with current trends. Above all do not think of Australia in isolation because what happens in the US & UK affects us!

Thommo

17-05-2005, 10:06 AM

Thommo,

A thought-provoking comment - I recall seeing some DECADES when property went up not at all (looking at someone's link on the forum that showed the values every 10 years for 3 centuries). It seems you see these times might be back upon us? Or is this just caution?

What do you see that indicates these times might be here again? Sure, prices have flattened, but isn't this "normal"? What else is there that you're seeing? Have we hit the "long-term recession" in property again? Or are we discussing a time when two World Wars had decimated so many people that the buyers just "weren't there"? Or had the Depression squashed people's hopes? Are those times REALLY upon us again?

I noted your "short term, 50 year" comment. Interesting..... What else can you tell me of this? It's an intriguing thought. Maybe disturbing too...

Always listening, even if not yet convinced :D

Regards,
Primarily, I was passing on my friend's father's experience with Sydney property as history. It covered the same period that my grandfather owned his so I assumed this indicated a long period of stagnant prices.

" It seems you see these times might be back upon us?" My crystal ball is broke so I cannot say, so "Or is this just caution?" is more my motive.

Your comment.... "Or are we discussing a time when two World Wars had decimated so many people that the buyers just "weren't there"? Or had the Depression squashed people's hopes?" is a very profound statement about that period. The wars would have reduced the number of possible buyers but I think the depression had an even greater effect on the phyche of those who lived through it.

Thinking back now I can remember an attitude totally different to the optimism felt by most Aussies today. This "fatalism" I saw didn't wash out until the '60s and the hippie generation.

My motive for these posts is not some attempt at prediction but more a reminder that things have not always been so. A "fat tail" event could easily change things but by definition they are unpredictable.

Philisophically it may be legitimate to say "What the heck!" and not to write survivability into your mission statement. That call is up to each of us.

Thommo

ps The "short term, 50yrs" bit was just mischevious.

T

lizzie

17-05-2005, 10:34 AM

was interested the other day reading in the local paper a "doom and gloom" story about how newcastle was the biggest property "crash" location in nsw and how investors are pulling out (major doom and gloom stuff that i love) - the same day one of my band of merry real estate agents e-mailed with a property offer (not yet advertised). before i had a chance to go for a driveby that afternoon he e-mailed me back to say it had sold, for $10k more than he told me he thought it would go for, to another of his on-the-books investors.

it was in a great location and comes back to the old adage of "rarity" of location. imo property in the right location for the right price should always sell well - regardless of the media sooth sayers.

Thommo

17-05-2005, 10:37 AM

I will be labelled a 'gloom & doom' merchant if I start to list these factors so I will avoid doing that and hope that others can contribute one or two.

Yes mate, you will be called Chicken Little and attacked if you go down that path.

I'll start the ball rolling with two though::p
Peak oil,
Personal debt.

Thommo

chook

17-05-2005, 11:16 AM

Re long period of stagnant prices

I liked the stagnant years and made money during the stagnant years.

I either:

1) bought land and built a house on it and sold; or
2) bought a "doer upper", renovated it and sold for a profit.

I was very confident doing this during the stagnant years because I had such a stable suburb price history to tell me what final sale price was achievable. As an example, years ago I bought a block of land for 53K, built a house on it for 90K and sold for 205K. I knew exactly what price was achievable before I started the project. The situation now is that I just don't know what is achievable. Too much price instability for me to jump in now. So there is an upside to stagnant years !

Les

17-05-2005, 10:08 PM

G'day Thommo,
ps The "short term, 50yrs" bit was just mischevious
Well you got me good :D Had me questioning "standard beliefs"..... so I guess that can't be all bad.

Anyway, I certainly appreciated the "longer look" at things - so thanks for that.

Regards,

DavidMc

19-05-2005, 04:38 PM

Good thread. I took sometimes think this and wonder ‘could it really be like that?’. I mean, if trends continue as they do (i.e. property prices increase greater than a constant(ish) multiplier of the average persons wage) then property will simply become further out of reach for the average Australian as time passes.

Maybe this will happen? When I think of what Australia might be like in 50 or 100 years sometimes I look at England and Europe. In Berlin and other parts of Europe even reasonably wealthy ‘middle’ families will rent their entire lives and that’s just the way it is. Property is simply that far out of reach for people. Some amazingly huge percentage of people in England live in government housing (was it as high as 35%? I can’t remember). In Amsterdam housing is in such short supply that the government manages a register and waiting lists for rental accommodation.

Home ownership in Australia is one of the highest in the world. I think we are living in a dream world in terms of affordability and quality of live compared to the rest of the world. People complain when petrol rises over $1 per litre here yet they pay $2 in Ireland (1.10 euro) and about $2.10 in England (88p) – and before people say ‘that’s because they earn more’ from my experience living and working there and using the Big Mac index it’s not the case (i.e. an entry level job at McDonalds is around 4.25 GBP per hour, or about 1.2x the price of a Big Mac meal – in Australia, you’d easily afford at least 2x Big Mac meals per hour working at McDonalds).

Could it be that our ‘dream land’ won’t last forever? Is everyone buying Australian?

mit

20-05-2005, 07:04 PM