$5.6 million Melbourne Median???

[natedog]

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!!!!!

 

[Sunfish]

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]

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]

what about AWOTE

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]

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 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]

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]

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]

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]

Anyone ..

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

cheers
quoll

 

[MarkB]

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

ABS article


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.

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

 

[geoffw]

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.

 

[Sunfish]

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

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

Thommo

 

[natedog]

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]

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

ABS article


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.

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]

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 ... lizzie

 

[natedog]

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

 

[Peter Parker]

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]

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.

 

[Sunfish]

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]

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.