2013 - Property Prices Through Time (with consideration for CPI)

[MarkB]

The attached spreadsheet contains Australian Consumer Price Index (CPI) data for each financial year since 1949/50.

Using CPI as a base it is possible to ascertain the real growth in the value of an asset. That is, the growth over and above what simply keeping pace with CPI would dictate.

This is a spreadsheet I have posted on and off since 2003, most recently in 2008.

I've actually simplified it from the last version as I am currently questioning some of my earlier logic with regards to mortgages (I will revisit this when I have some spare time).

That aside, I would welcome any any suggested improvements* and if you see any errors please point those out too.

(*A future version will hopefully take account of R&M and taxes)

EDIT - The spreadsheet has been improved to make it easier to use (thanks Geoff) and I have made some minor alterations to the layout.

 

[geoffw]

Make it easier to use CPI- so by entering the year, the appropriate CPI can be entered.

Replace D16 with "=VLOOKUP(2001,A:B,2)"

And of course for other years where you want to put in CPI

 

[MarkB]

VLOOKUP

Thanks GW.

Upgrade in progress, but also prompts a slight redesign too.

 

[alexlee]

Real growth rates aren't as important when you borrow money to buy the asset.

To put it another way, if I borrow 100% to buy an asset, I still make money as long as the real growth rate is zero or positive.

 

[MarkB]

Real growth rates aren't as important when you borrow money to buy the asset.

To put it another way, if I borrow 100% to buy an asset, I still make money as long as the real growth rate is zero or positive.

Well, if your holding costs don't eat up all your profit that is.

Or is no-one on this forum holding negative CF property?

EDIT: Perhaps someone should do a poll and ask how many people would invest in real estate on the assumption that it only ever grew in value in line with the CPI (so NO real appreciation). Imo I think that would be enough to make the greater proportion of property investors think twice about their involvement in the asset class.

 

[MarkB]

Real growth rates aren't as important when you borrow money to buy the asset.

To put it another way, if I borrow 100% to buy an asset, I still make money as long as the real growth rate is zero or positive.

Post above aside, I agree with you which is why my OP said this:

I've actually simplified it from the last version as I am currently questioning some of my earlier logic with regards to mortgages (I will revisit this when I have some spare time).

 

[redwing]

There used be a great one on the forum that had the various cities and gold with updates posted by Twitch

Sadly it's not updated

City Value Indexes

 

[jusm]

Interesting spreadsheet Mark. It does of course raise the question of why house prices would rise greater than CPI.

- household income has increased - more 2 income families?
- building costs outstripping CPI additional compliance costs, energy considerations
- higher requirement for living standards. eg bigger houses, stylish fitout.
- likewise, less preparedness to settle for less in terms of housing.
- land costs increasing higher than CPI due to compliance/regulatory/infrastructure costs

Of course the most obvious and often overlooked reason for house costs to increase more than inflation is that we have seen an unprecendented renovation boom in the last decade that is not taken into account in house price data.

Cheers

 

[Deltaberry]

Population growth, low cost of credit.

 

[BayView]

EDIT: Perhaps someone should do a poll and ask how many people would invest in real estate on the assumption that it only ever grew in value in line with the CPI (so NO real appreciation). Imo I think that would be enough to make the greater proportion of property investors think twice about their involvement in the asset class.

It would make them/us/me think twice for sure.

Unless they change the other factors -
*heavily tenant biased rights with no real recourse for the LL.
*cr@p rent returns

 

[MarkB]

Interesting spreadsheet Mark. It does of course raise the question of why house prices would rise greater than CPI.

And there are some locations (very desirable ones) that attract people with very deep pockets.... No trotting off to the bank manager cap in hand for a loan for these people....

 

[dredfern]

How about more and more people all competing for the same properties?(ofcourse depends which properties you buy)

 

[BayView]

How about more and more people all competing for the same properties?(ofcourse depends which properties you buy)

That is the normal state of things - supply and demand.

Demand will drop when the cost of a house becomes unaffordable.

Then, the price stagnates until the wages catch up enough for folk to be able to afford it again.

At least; that is what I have observed over the last 40 odd years, and I don't reckon much has changed.

 

[Peter Parker]

That aside, I would welcome any any suggested improvements* and if you see any errors please point those out too.

Thanks Mark.

Other comparisons include:

1. House prices vs median incomes (as incomes have generally risen relative to CPI)

2. House prices vs median household incomes (more 2 income households has increased this at an even faster rate)

3. Some factor incorporating interest rates / deposit requirements at the time

After factoring in these the rise in real house prices may appear less dramatic.

 

[Hoffy]

Of course the most obvious and often overlooked reason for house costs to increase more than inflation is that we have seen an unprecendented renovation boom in the last decade that is not taken into account in house price data.

Cheers

I believe this is a massive factor which is (conveniently) ignored by the real estate "industry" and property spruikers.

 

[Indifference]

Well, if inflation was reported in a more transparent and relevant manner, perhaps much of the additional "growth" would disappear....

I pose this question: If CPI as reported by the ABS is a true & accurate measure of purchasing power, why are a large portion of real goods & services excluded?

Many of which are required to build a house I might add....

 

[MarkB]

I pose this question: If CPI as reported by the ABS is a true & accurate measure of purchasing power, why are a large portion of real goods & services excluded?

Someone else might want to go there, but I've said more than I ever want to say on that topic (or ones very closely related to it) in these two threads:

Do you believe the CPI reported by the ABS?

and

How accurate is the rate of inflation?

 

[Indifference]

Someone else might want to go there, but I've said more than I ever want to say on that topic (or ones very closely related to it) in these two threads:

Do you believe the CPI reported by the ABS?

and

How accurate is the rate of inflation?

All very good points raised in those threads Mark, but you would surely acknowledge that it is all relative. Relative to what economic sector is being considered and the macro economic cycle / trends. Right now, monetary expansion is rife amongst most economies and therefore I believe the affects of QTM are far more pronounced right now, due to the current economic climate (ie. past 10 yrs & next 10 yrs)

Also, if CPI was a good long term measure, our veterans on pensions would not be slipping further away from their "non-veteran" pension recipients whom receive the greater of 3 indexes... typically MTAWE is higher & more accurate for maintaining purchasing power. Veterans get CPI only.... This is a real case of where it is important to use the right metric for the right purpose. CPI is not necessarily an accurate catch-all for all economic matters....


Just saying....