House Prices in Australia since 1970!

MBL has been asking for proof that house prices in Australia have doubled every 10 years for the past 50 years. I couldn't find anything going quite that far back (I guess the records weren't so good back then) but I did find this report that goes back to 1970, and uses Treasury sources, so it should be reasonably accurate. It took about an hour of searching the web to find this document!

I'm sorry to say my findings do not support the claim that house prices have doubled every 10 years since 1970. In fact, the authors make this conclusion...

'Between 1970 and 2003, Australian real house prices rose by over 3 per cent per annum. On a quality-adjusted basis, house prices rose by about 2.3 per cent per annum. Over this period, there were four house price booms: 1972-74, 1979-81, 1987-89 and 1996 to 2003. In between these booms, real house prices tended to fall.'




My observations:

1. The booms have been getting larger...
- During the first ten years, prices rose by approx. 30%
- During the second ten years, prices rose by approx. 40%
- During the third ten years, prices rose by approx. 70%

2. These prices would include lower growth regional areas. Carefully selected properties close to capital cities, near water etc. would have performed much better than the average.

3. If the booms are getting progressively larger, what does this mean for the next ten years? We may see prices increase by more than 100%. Or we may return to the long term trend of 3% per annum.

4. Many cities around the world are more expensive than Australia. Australian prices should have ample room for further growth, before we become as expensive as Moscow, Seoul, Tokyo, Hong Kong, London, Osaka, Geneva, Copenhagen, Zurich, Oslo, New York, St Petersburg, Milan, Beijing, Istanbul, Paris, Singapore or Dublin.

Top 50 Expensive Cities: http://www.smh.com.au/news/world/top-50-cities/2006/06/26/1151174117013.html

House Prices 1970 to 2003: http://www.econ.mq.edu.au/research/2005/HousePrices.pdf

Some food for thought!

Cheers, Shadow.

Shadow said:

'Between 1970 and 2003, Australian real house prices rose by over 3 per cent per annum. On a quality-adjusted basis, house prices rose by about 2.3 per cent per annum. Over this period, there were four house price booms: 1972-74, 1979-81, 1987-89 and 1996 to 2003. In between these booms, real house prices tended to fall.'

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Hi Shadow,

What does real house prices mean ? Does it mean actual prices adjusted for inflation ? What was inflation over the period ? If inflation averaged 4%, then actual prices (what we actually pay) rose by 7%pa over the period.

Note that your mortgage is NEVER adjusted for inflation.

The other point is that it uses an arithmetic scale, which will account for much of the perception of larger booms more recently. A logarithmic scale would show it as close to a straight line.

Cheers Keith

keithj said:

Hi Shadow, What does real house prices mean ? Does it mean actual prices adjusted for inflation ? What was inflation over the period ? If inflation averaged 4%, then actual prices (what we actually pay) rose by 7%pa over the period. Cheers Keith

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Hi Keith... all the detailed info is in the PDF file... just follow the link at the bottom.

Interesting chart Shadow. Must say it confirms a gut feeling I've had about prices over such a period.

The house I'm sitting in today I bought almost 40 years ago so it may be a good example but not necessarily a typical one. It cost $10 in '68. At that time it was only a few years old so it would have been above median, although I didn't know the term. I just bought a house to live in.

To have doubled every 7 years it would need to be worth half a mill today. It isn't. Without DA it would hardly be more than a qtr mill. (In fact, that's what I was offered a few months ago and knocked back, and my neighbour accepted) And it is no longer up to the standard of today's "median". Naturally the land component swamps the value of the structure because it is on a centrally situated qtr acre block. My memory (I was not an active investor and didn't follow closely) agrees with what the chart says happened between '70 and the late eighties. Not a lot, except for the spurt in the late '70s. I think much of Australia, exSydney, would have been similar.

I have always maintained that "doubling every 7-10yrs" is simplistic. Ever watched an inch worm? The head takes off, leaving the tail, only to stop while the tail catches up and off it goes again. Different parts of the catapillar are advancing across the leaf at different times and rates. Timing and luck are still necessary ingredients of success, not just "time in the market".

Oh! I forgot. Rent returns for investors were better back then although I can't give figures.

Fish

Thanls shadow........just proves the point I have been trying to make.

Thanks for the post Shadow.

Personally, I'm surprised how seemingly offended people are towards MBL's posts. I think he has made some valid points to consider.

As we all know, in terms markets generally, they fluctuate, and booms are typically followed by busts.

In terms of buying vs. not buying (and waiting for the bust), I tend to think that buying well placed property in well placed suburbs can be done at any point in the market. In any situation, at this point in time I would not want to be over-extended financially.

Ben

Block prices in my suburb

We live in a pretty old part of town, about 5km from the Perth CBD.

The area was split up and sold off in quarter acre lots way back in 1914....some 93 years ago.

Blocks sold like hot cakes, at 28 pounds ($ 56) a piece, with a 2 pound deposit and interest free loans.

To construct a house cost about 900 pounds back then, some 32 times the cost of the land. If only someone had known what was to happen in the future, they'd have bought up 32 lots and lived in a tent for a while....but I digress.


The median price of a lot today is $ 2.45 M, and if one ever comes up for sale, it's snapped up, the old 40's or 50's house is smacked down and a monstrosity is put up....usually by someone fiddling with the stock options.


Anyway....the value of the land has gone from 56 to 2.45M in 93 years, a CAGR of 12.17%.

To see what sort of effect the latest Perth boom has had, 2 years ago the lot was worth 1.45M. So, with only 91 years of data, it was 11.81%. So, the boom over the past two years has done bugger all to lift it much.
I reckon that's pretty reflective of any of the older suburbs here in Perth.

Here's the Melbourne data.

Residex has it back to Jan-75.

From Jan-75 to Jan-85 : 272% increase
From Jan-85 to Jan-95 : 186% increase
From Jan-95 to Jan-05 : 252% increase

Total increase over period 1,274% (ie 12.7 times more expensive).

Over 30 years a doubling every 10 years should have only increased prices by 8 times. Melbourne has out performed that.


cheers

mbl said:

Thanls shadow........just proves the point I have been trying to make.

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No worries MBL... I do agree with you that property prices don't double every 10 years, but I don't necessarily agree with all of your other points.

Personally, I think the correction has already happened, and if you look at the graph above, and picture in your head the negative growth from 2003-2007, then I think we would probably be back onto the trend line, with a period of several years moderate growth to come, followed by another boom towards the beginning of the next decade. And the next boom may be even bigger than the last one... that's been the trend so far.

Perhaps someone with good PhotoShop skills could merge the graph above with a graph for 2003-2007, and come up with a long term trend line?

Cheers,

Shadow.

Twitch....you can't see that in the graph you posted, the prices from 2001 onward have escaped the mean ?

and here's the same data on a log scale

mbl said:

Twitch....you can't see that in the graph you posted, the prices from 2001 onward have escaped the mean ?

Click to expand...

Sorry, your post is a dead giveaway you do not understand what you are talking about. Have a look at the second chart with a log scale.

And here's another one....

Twitch said:

and here's the same data on a log scale

Click to expand...

I am sorry.....but what exactly is a long scale ? These graphs you have posted contradict eachother....

Twitch said:

Your post is a dead giveaway you do not understand what you are talking about. Have a look at the second chart with a log scale.

And here's another one....

Click to expand...

That graph was funny LMAO

Shadow said:

No worries MBL... I do agree with you that property prices don't double every 10 years, but I don't necessarily agree with all of your other points.

Click to expand...

and for MBL's benefit that usually means that not EVERY property will. Only some property. Obviously as part of investing these are the ones that we are out to purchase.

You could even say that if you did manage to get property that has regularly done 12% PA for 30 years (even if you only bought it last week via leverage), then a downturn in "median" price (as these graphs are using), might not even be noticeable to you. i.e. It won't effect that property to the same degree that it will others.

Really. There is so much more to the property game than a simple median graph. Yet that is all we seem to be discussing with you. Median value and yield is not the be all and end all.

Not once have I seen you discuss taxation, income vs debt is a prime example. I pay 41 cents in the dollar to the government when I earn income. When I spend debt it costs me 7.6% (at present), even at 15% it's still cheaper. The only difference is that debt accumulates in the -ve and your mind doesn't seem able to appreciate the concept of large debt.

Cheers,

Arkay.

Sunfish said:

It cost $10 in '68. At that time it was only a few years old so it would have been above median, although I didn't know the term. I just bought a house to live in.

To have doubled every 7 years it would need to be worth half a mill today. It isn't. Without DA it would hardly be more than a qtr mill.

Fish

Click to expand...

I reckon, at 10 grand in 68, to 250 grand now. Call it 39 periods.
Using this compound growth calculator,...
http://www.investopedia.com/calculator/CAGR.aspx

I get 8.6%.

Thats not bad, and easily doubles every ten years.

See ya's.

I flogged this off a post I did months ago, this one,...
http://www.somersoft.com/forums/showpost.php?p=268724&postcount=2

This is not resi property.
It is black soil farm land. I'm sure it would be interesting to some. It is a guide to what pure land has done, as a farm is nearly all land content.

Original family block.
Bought 1935 for $27 per hectare.
today worth .....$5000 per hectare.
compound growth of 7.63%

Next purchase.
Bought 1966 for $80 per hectare.
today worth .....$5000 per hectare.
compound growth of 10.89%

Next purchase.
Bought 1998 for $2000 per hectare.
today worth .....$5000 per hectare.
compound growth of 12.14%.

All this land would be valued at about these figures not including improvments like houses, sheds, grain silos, whatever. Like resi property, it has seen big jumps in value in short periods, latest jump in 03 to 05, with long flat periods in between.

This land was purchased in the normal growth of a family farm. The original block supported 5 families. Todays blocks, are much bigger, and supports 2 families. If I sold out tomorrow it would most likely be purchased by a farmer. It is not real estate.


None of this proves anything, because I could be a big lier and I made it all up.

See ya's.

topcropper said:

I reckon, at 10 grand in 68, to 250 grand now. Call it 39 periods.
Using this compound growth calculator,...
http://www.investopedia.com/calculator/CAGR.aspx

I get 8.6%.

Thats not bad, and easily doubles every ten years.

See ya's.

Click to expand...

That is what Wikipedia said 'oright!

But rule of 72 says you need about 10% PA compound to double in 7 years.

Here we have demonstrated that there is a significant difference between getting 7.2% pa and doubling in 10 yrs and getting 10% and doing it in 7. Borrowing money @ 7-8% and earning 10 plus some nett rent and tax benefits is good biz. I'll have some of that. But 7.2% is marginal and does not give adequate return for risk, and MBL isn't the only one who doesn't believe property is risk free.

We all know there are some smart folks on SS but in spite of this, when I started posting here, maybe '04 and mentioned Townsville they laughed at me. Flat growth and going nowhere I was told. (How could that be? Property always doubles every 10 yrs.) Well we are booming and Sydney is flat. The point is, no matter how smart you are, if you take note of these charts you are driving in the rear-vision mirror and have a good chance of being wrong.

Seech invested in both Rockhampton and Townsville then. It would be interesting to get his recollections. He was breaking with the common wisdom of the time.

Edit: I'm happy with that return. BTW. It has been my home and as such has been a smart buy. And the original 25 yr mortgage ($54/mth) is long gone. LOL

Sunfish said:

That is what Wikipedia said 'oright!

But rule of 72 says you need about 10% PA compound to double in 7 years.

.

Click to expand...

Nah, not Wikipedia, it's just a usefull compound growth calculator that I always use.

The original post was talking about doubling in 10 years, so thats 7.2% right? which I think is quite acceptable for return, however if you could get better, thats great.

One thing that throws everything out of whack though is the high interest rate, high inflation rate period of the 1980's. At 7.2% capital gain, when interest rates were 15% and inflation was 12% was not real good...

Lets just forget about that strange and painfull period in time.

Cheers.

Compound Interest

topcropper said:

I reckon, at 10 grand in 68, to 250 grand now. Call it 39 periods.
Using this compound growth calculator,...
http://www.investopedia.com/calculator/CAGR.aspx

I get 8.6%.

Thats not bad, and easily doubles every ten years.

See ya's.

Click to expand...

Rate = (Value_Now / Valu_Then) ^ (1 / (Year_Now - Year_Then)) - 1

= (250/10)^(1/(2007-1968))-1

= 0.086037 = 8.6%