boom, boom 
101% performer: house prices double in a decade
- Thread starter dwv
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boom, boom
.... tish!
OK, but there's still some as think that Sydney ain't booming.
FWIW, I'm in the 100% in the next decade crowd. Can't see anything macro that would derail that for Australia. We're caught in that happy place where our mineral resources in a country of 20 million people are being consumed to support the urbanisation of a country of over 1 billion.
You do the math. I'm calling Aus the Saudi of the Pacific over the next decade!
Cheers,
Michael
I'm calling Aus the Saudi of the Pacific over the next decade!
Cheers,
Michael
Nice 1 Michael,
now lets hope that the fed government actually does something with all that money which is about to start coming our way....
Also, let's all buy BHP & RIO shares otherwise it'll be going to the multinationals and/or back to China....
Well the news is out......Av. Sydney house prices just doubled in the last 10 years........I won't say I told you so
http://www.dailytelegraph.com.au/pr...uble-in-a-decade/story-e6frezt0-1225804705068
Well the news is out......Av. Sydney house prices just doubled in the last 10 years........I won't say I told you so
http://www.dailytelegraph.com.au/pr...uble-in-a-decade/story-e6frezt0-1225804705068
Do you know what the stats are for Melbourne?
Where's that?
OK, no sorry I don't have access to Melbourne stats. At a guess I'd say Melbourne did a little bit better over the last 10 years. You had a mini-boom 2007 which Sydney did not have, and in this 2009 boom, Melbourne is doing slightly better again.
You can revert to trend now
Well the news is out......Av. Sydney house prices just doubled in the last 10 years........I won't say I told you so
http://www.dailytelegraph.com.au/pr...uble-in-a-decade/story-e6frezt0-1225804705068
Allan
Assuming that the Granville house would have doubled in 10 years then it's value should have been $260K in 2006 and $318K today.
Therefore using this theory the guy paid $37K too much.
Not a big deal really, the good thing with Sydney though is that we've essentially run out of land so he's buying something which later on will be very valuable and Granville is right in the middle of the geographical area of Sydney.
If inflation is around the 3% mark (with wages increasing at the same rate), and house prices increased by around 7% per annum (i.e. doubling every decade) then property is increasing by around 4% per year in real terms.
Over a decade that would mean houses would become 50% more expensive relative to incomes, and double relative to incomes every 18 years. I can't see that being sustainable over the long term.
Over a decade that would mean houses would become 50% more expensive relative to incomes, and double relative to incomes every 18 years. I can't see that being sustainable over the long term.
On average you may be right. But no-one every buys a city average, they buy specific houses in fixed locations that they can afford.
In 10 years time, more houses will have been built. These new houses will be in poor locations ('cos all the good blocks have already been taken by existing purchases). These cheaper houses are added to the total statistical population of a city, and they tend to drag a city average down. Obviously, to maintain the average, something else must increase more than the average.... those houses are the better located ones, that were bought 10 years ago, and are now better located and more desirable as they are relatively closer to the CBD.
So when you say average prices can't increase at much more than wages growth you're right from a citywide statistical POV, but wrong from a getting rich from IP POV.
But wages won't be increasing at the inflation rate,
yes now companies can use the GFC excuse not to pass large pay increases to their employees but they can't do it for long.
Last year I got a 6% increase and the year before it was higher, so payrises will vary but are mostly above CPI
KeithJ, take a look at the Herengracht Index.
If you haven't come across it, it's a very long term study over a period of around 400 years of house price movements on the Herengracht (or Gentlemen's Canal) in Amsterdam. What makes it interesting is that this has been prime real estate for its whole history, and hasn't suffered significant price fluctuations because its popularity has waxed and waned.
The central finding was that over the very long term, prices tend to track wage growth. Good areas don't keep on rising faster than incomes.
(So a better, albeit more risky, investment strategy would be to identify up and coming areas and buy there.)
Which brings me onto Bill's point...
I don't know the growth rate of wages, but even if the median rises by 5% or 6% per annum there's going to be a slow, but continuous, worsening of affordability if house prices are rising at 7% or more. And at some point there will still be a hard limit to what buyers can afford to pay.
If you haven't come across it, it's a very long term study over a period of around 400 years of house price movements on the Herengracht (or Gentlemen's Canal) in Amsterdam. What makes it interesting is that this has been prime real estate for its whole history, and hasn't suffered significant price fluctuations because its popularity has waxed and waned.
The central finding was that over the very long term, prices tend to track wage growth. Good areas don't keep on rising faster than incomes.
(So a better, albeit more risky, investment strategy would be to identify up and coming areas and buy there.)
Which brings me onto Bill's point...
I don't know the growth rate of wages, but even if the median rises by 5% or 6% per annum there's going to be a slow, but continuous, worsening of affordability if house prices are rising at 7% or more. And at some point there will still be a hard limit to what buyers can afford to pay.
Gramesay and Keith both make excellent points and are both correct I believe!
One of the multi century studies I have seen has property 'only' tracking inflation over a longer term, which I think makes a lot of sense, everything might just mean revert over a long enough time frame I think. From a practical wealth creation POV, many fortunes can be made while we are all waiting for prices to return to some point.
It's possible to purchase so well with property and just value add in general (much easier than I have found with shares in my own experience) that you mitigate a lot of the future risk concerning price movement.
One of the multi century studies I have seen has property 'only' tracking inflation over a longer term, which I think makes a lot of sense, everything might just mean revert over a long enough time frame I think. From a practical wealth creation POV, many fortunes can be made while we are all waiting for prices to return to some point.
It's possible to purchase so well with property and just value add in general (much easier than I have found with shares in my own experience) that you mitigate a lot of the future risk concerning price movement.
You'll see we had a thread about it in 2006... and others since.
400 yrs isn't a time frame I'm especially interested in.... 20-50yrs is. Too much is different now as opposed to 100 yrs ago, let alone 400 yrs. I feel the more recent past (20-50yrs?) should be weighted far more than 100+ yrs ago. To many differences in eg inflation, population growth, planning laws.
Affordability is what someone can afford the service ie debt/income ratio rather than price/income ratio. $270K is the average new loan taken out. That's easily serviceable by the vast majority. Obviously many of these people have a large deposit. So your hard limit is a hard limit on serviceability or debt. And as long as more affordable houses are being paid off on the periphery, inner ring house prices will rise faster, creating equity. And so less debt is needed to upgrade to the next suburb up.
Debt affordability is relevant to everyone.
Price affordability is only relevant to the cheap suburbs because everyone else has a large deposit
My 90yo granny has just sold her place 15km out from CBD for $1.5M. She could easily afford to live in it because she has no debt. However 70 yrs ago, she was one of the battlers way out in the 'burbs.
Hi Andrew,
I'm all in favour of mean reversion.... except for a couple of points.
- Which mean do we revert to ? The 400 yr mean ? the 50 yr mean ? the 20 yr mean ? I'd argue that the 400 yr mean is irrelevant because to much has changed over that period. The last 50 yrs has seen huge changes in planning restrictions, multi story buildings/higher density, change of land use, population increases, inflation, centralised jobs, keep up with Jones mentality, etc. The next 20 yrs looks like being similar to the last 50 yrs, and unlike the 350 before that.
- The mean keeps changing. For 1900+ yrs inflation & growth were v. low, then about 50 yrs ago, inflation & growth increased enough to give us an unusually high growth period. 50 yrs ago, no-one would have invested in property based on the previous 1900 yrs of low growth. This is the point I think you're making.
- Some means are irrelevant. Again coming back to your point. Who cares what the 400 yr mean is - I won't be holding for 400 yrs, but I'm happy to take advantage of the 50 yr mean.
Cheers Keith
Problem with the Herengracht Index is that it's based on houses that have remained the same for 350 years, and the population of Amsterdam (I'm just going off Wikipedia here) has gone up from about 200,000 in the 17th century (I'll use 1650) to 1.36m in 2008. By my calculations, that's 0.54% a year.
So the Herengracht Index suggests that properties that can't/won't be redeveloped (think extreme Heritage listing) in a city with very little population growth and declined from being called the wealthiest city in the world in the 17thC to a second or third-string city over 350 years, will only track wage growth.
I agree.
Compared that to a country that has has 1.5% increase a year for the last 2 years, where even higher increases are expected, in cities that are developing, not declining, with properties that can and will be re-developed?
Gee. I'm going to believe Australia will be like Amsterdam and sell everything now and rent forever.
So the Herengracht Index suggests that properties that can't/won't be redeveloped (think extreme Heritage listing) in a city with very little population growth and declined from being called the wealthiest city in the world in the 17thC to a second or third-string city over 350 years, will only track wage growth.
I agree.
Compared that to a country that has has 1.5% increase a year for the last 2 years, where even higher increases are expected, in cities that are developing, not declining, with properties that can and will be re-developed?
Gee. I'm going to believe Australia will be like Amsterdam and sell everything now and rent forever.
Hi Keith,
All excellent points! I enjoy these conversations, but find that they take me away from the business of taking action and getting results, so everything in moderation The wisdom of having a goal, generating a plan and implementing that plan while you get feedback, adjusting the plan and repeating until your goal reached is advice I try and follow myself now in relation to property.
Can I be a bit philosophical here and provide what I think is the ultimate in mean reversion from the book of genesis I think.
Dust thou art, and unto dust thou shalt return
So no point worrying about anything too long term potentially, especially when those concerns can be actioned away to a large extent, which they can in property through buying well and adding value! Yes those 50 year cycles really through a spanner in the 500 year trends! Jared Diamond in 'Collapse' commented historically on how human communities are vulnerable to natures longer term cycles as a generation of benign weather might lead to a community losing the adaption skills for the coming changes. Same thing seems to happen in finance.
All excellent points! I enjoy these conversations, but find that they take me away from the business of taking action and getting results, so everything in moderation
The wisdom of having a goal, generating a plan and implementing that plan while you get feedback, adjusting the plan and repeating until your goal reached is advice I try and follow myself now in relation to property.Can I be a bit philosophical here and provide what I think is the ultimate in mean reversion from the book of genesis I think.
Dust thou art, and unto dust thou shalt return
So no point worrying about anything too long term potentially, especially when those concerns can be actioned away to a large extent, which they can in property through buying well and adding value! Yes those 50 year cycles really through a spanner in the 500 year trends!
Jared Diamond in 'Collapse' commented historically on how human communities are vulnerable to natures longer term cycles as a generation of benign weather might lead to a community losing the adaption skills for the coming changes. Same thing seems to happen in finance.If you take a look at a graph of the Herengracht Index then it shows significant volatility, but doesn't tend to sit on a trend line.
I'd read the investment message in the above as buy property when it's cheap, sell when it's expensive, and don't expect capital appreciation to remain above inflation or wage rises over the long term.
As for Hooray's comments, the Netherlands is a bit different from Australia. The population there has grown fairly rapidly (from 11 million in 1960 to 16 million now, versus 10 million in 1960 to 21 million now in Oz). But the country is much smaller (would fit into Tasmania) and more densely populated.
There's also a good transport network, so it's possible to commute across the country. I know, I used to do it.
I don't agree with KeithJ's point about ever-increasing deposits bailing out the market. Ric Battellino made a comment about them raising from six months salary to 15 or 16 months.
For ease of the maths, let's say that FHBs have 1.5 times their salary as a deposit, plus 3.5 times as a mortgage. They can then afford a house worth five times salary. Salaries rise by 4% per annum and house prices by 7%.
Then:
I'd read the investment message in the above as buy property when it's cheap, sell when it's expensive, and don't expect capital appreciation to remain above inflation or wage rises over the long term.
As for Hooray's comments, the Netherlands is a bit different from Australia. The population there has grown fairly rapidly (from 11 million in 1960 to 16 million now, versus 10 million in 1960 to 21 million now in Oz). But the country is much smaller (would fit into Tasmania) and more densely populated.
There's also a good transport network, so it's possible to commute across the country. I know, I used to do it.
I don't agree with KeithJ's point about ever-increasing deposits bailing out the market. Ric Battellino made a comment about them raising from six months salary to 15 or 16 months.
For ease of the maths, let's say that FHBs have 1.5 times their salary as a deposit, plus 3.5 times as a mortgage. They can then afford a house worth five times salary. Salaries rise by 4% per annum and house prices by 7%.
Then:
- Year 0 - 5 times salary for property, 1.5 times for deposit.
- Year 10 - 6.7 times salary for property, 3.2 times for deposit.
- Year 20 - 9 times salary for property, 5.5 times for deposit.
The average salary has apparently reached 60k. I wonder how much people borrowed 30-40 years ago to buy their homes?
As for Hooray's comments, the Netherlands is a bit different from Australia. The population there has grown fairly rapidly (from 11 million in 1960 to 16 million now, versus 10 million in 1960 to 21 million now in Oz). But the country is much smaller (would fit into Tasmania) and more densely populated.
There's also a good transport network, so it's possible to commute across the country. I know, I used to do it.
I agree that the Netherlands is different from Australia. Australia's population growth is more rapid, the country is bigger, and less densely populated. And our transport network sucks. Though I thought we were talking about the 350 year trend of a SPECIFIC street in Amsterdam, not the Netherlands as a whole? When did we switch to a 50 year trend for the Netherlands as a whole?
Yes, the two countries are indeed different. No disagreement there. So a study that uses a very specific type of property (no-redevelopment heritage listing) in a city that's declining, in a country that's very different from Australia......... personally, I'm not about to base my Australian property investment strategy on it.
I'm happy to go along with all those assumptions except the last one. A city may do an average of 7%pa, but not every single house does exactly 7% - some do more, some do less, and lots of cheap houses are added to the statistical population around the edges. These cheap houses that FHB can afford drag the city average down - the rest of the city rises ~7%pa ave. - Therefore the deposit required by FHBs rises a lot more slowly than 7%.
The reality is that cheap houses that FHB can afford are added to a city. Having to find a deposit of 9x salary is crazy.
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