Can property value double every ten years?

Y

Yann

Hi all,

It is commonly agreed that property kind of double every ten years. Well what do the maths say? Doubling is an exponential function which I guess is known by many of you. Yes it happened during the last 100 years, but if it continues to double every ten years for the next 110 years, well the median property price will be just over 1 billion dollars :eek:.

Just wanted to share this interesting fact and if you have given it any thoughts? I have seen several exit possibles in other countries not that long ago, from a 'japonisation' of the economy (soon to become 'europeanisation'), super inflation or in some rare cases the end of paper money. Any views?

Yann
 
Like everything, it goes in waves. It can double in less than 10 years then sit there for 5 years, basically it goes with inflation but is also effected by interest rates which limit how much people can borrow.

The other thing that has happened in in the past 2 decades is that it is now usual for both partners to be working. This increases the amount they can borrow which increases the value of real estate.

Now that both people working is the norm we will see property values stall when the interest rate is increased, even if only .01%, the mood will change over night.
 
The other question to ask, is how have property sizes changed and what's expected to happen? There was a time when the average size was a quarter acre block, this is pretty rare nowadays where apartments are often around 50 square meters.

Hard to imagine that doubling every 10 years is sustainable, but it was also hard to imagine today's property prices 15 years ago.
 
Yann said:
Hi all,

It is commonly agreed that property kind of double every ten years. Well what do the maths say? Doubling is an exponential function which I guess is known by many of you. Yes it happened during the last 100 years, but if it continues to double every ten years for the next 110 years, well the median property price will be just over 1 billion dollars :eek:.

Just wanted to share this interesting fact and if you have given it any thoughts? I have seen several exit possibles in other countries not that long ago, from a 'japonisation' of the economy (soon to become 'europeanisation'), super inflation or in some rare cases the end of paper money. Any views?

Yann
Click to expand...

Honestly depends on so many things I just sold a regional property I held for 9 years and sold it price only 35k more than i paid yet some of my other properties have doubled in same time frame.
Macca446
 
Tony3008 said:
This one - five-bedroom house, 243m2 on 968m2 of land - hasn't http://www.propertyobserver.com.au/finding/residential-investment/sales-and-auctions/36889-glenelg-bungalow-sells-for-1-195-million.html - Glenelg, $750K to $1.195m in 14 years (59%), 3.5% a year by my reckoning. From discussion at last weeks Melb meet, I would have thought this was a safe area to invest?
Click to expand...

LOL you pick out 1 property in all of Australia for your point?:eek:

There's several properties in all cities that both have and haven't, linking one property does you no favours.
 
Tony3008 said:
This one - five-bedroom house, 243m2 on 968m2 of land - hasn't http://www.propertyobserver.com.au/finding/residential-investment/sales-and-auctions/36889-glenelg-bungalow-sells-for-1-195-million.html - Glenelg, $750K to $1.195m in 14 years (59%), 3.5% a year by my reckoning. From discussion at last weeks Melb meet, I would have thought this was a safe area to invest?
Click to expand...

When i did my analysis the long term average increase is 4-4.5%, so about 1% above inflation. Wow what a great return.
 
When I was looking to buy in 2770 in 2011, properties were just getting back to their 2003 prices, particularly those purchased for top-dollar at the time. Since 2011 they have nearly doubled.

Those that sold in 2011 only had to wait a couple more years. Those that are buying now should have bought a couple of years ago.

Timing is important, both when to buy and when to sell. For those that "hold", well, you need to cash out some time IMHO. :)
 
Last edited:
Yann said:
Yes it happened during the last 100 years, but if it continues to double every ten years for the next 110 years, well the median property price will be just over 1 billion dollars :eek:.
Click to expand...

A billion dollar median sounds like a lot, just as 110 years ago a 500k median sounded like a lot.
 
Also sounds like a killer that 100year to 110 year

Today $500,000
10 years $1,000,000
20 years $2,000,000
30 years $4,000,000
40 years $8,000,000
50 years $16,000,000
60 years $32,000,000
70 years $64,000,000
80 years $128,000,000
90 years $256,000,000
100 years $512,000,000
110 years $1,024,000,000


However looking backwards the 100 year to 110 years ago seems like nothing lol

Today $500,000
10 years $250,000
20 years $125,000
30 years $62,500
40 years $31,250
50 years $15,625
60 years $7,813
70 years $3,906
80 years $1,953
90 years $977
100 years $488
110 years $244
 
Taking some figures from the
Australian Bureau of Statistics
ABS said:
In 1901, the average weekly wage for an adult male was about $4.35 for a working week of almost 50 hours, which after inflation equates to $217.50. However, wages have grown much faster than inflation, with the average weekly ordinary time earnings for adult males in May 2000 being about $830.00 for around 37 hours work, in far better conditions.
Click to expand...

If the weekly wage in 1901 was $4.35, consider how that looks when you're trying to purchase a house worth $244.00. The annual wage might be $226.20 so a house costs just a bit more than the annual wage.

These days the rule of thumb for affordability is about 5 times the annual salary.

Also consider that in 1901 banks generally didn't lend to home buyers, certainly not leveraging the way they are now. As a result, a purchase price of $244 becomes fairly scary. The term, "Far better conditions," has some interesting implications as well. A lot of people didn't have a real expectation of surviving their job to go onto retirement, Workcover didn't exist. ;)

The page goes on to describe the cost of living as a comparison. Food is comparatively priced. Personal transport was significantly more expensive, but public transport was cheaper. Alcohol was cheaper 100 years ago as well and given the amount of taxes we have today it should come as no surprise that cigarettes now cost almost 5 times what inflation would otherwise suggest.

Unfortunately there doesn't appear to be any house costs comparisons.
 
Looking at Australia's median house price for the past century it was stagnant for the first 50years, linear between 1950 and 1990 then exponential growth till now. Comparing house prices between now and 100years ago, then extrapolating another 100years doesn't work for me..

As Peter mentioned ease of credit has totally changed. Dad's single income has changed to a 'household disposable income'. Those two factors alone would account for the exponential growth in the past decades.

Doubling every 10 years equates to over 7% annual growth. Wages have barely been keeping up with inflation lately.. Unless we include all 'household disposable incomes' increase to include kids and grandparents wages, and we go back 105% lending, I can't see that growth rate keeping up much longer..
 
It is a guide not locked in concrete.

I received a sms from a receptionist I used to work with and it said what I said appears to be true.

When I called her it was about her house and the value which she remembered we had during the time of the GFC and said that her property will go down in value but give it a couple of years and it will equal out to be about doubling every 10 years.

I said that even if it takes 11 or 12 years to double some properties might take only 7 years to double but use it as a guide and now it has followed roughly what I spoke about during the GFC.

Thing is that yes growth to double every 10 years is 7% growth however you buy in todays dollars and pay off the next x years.

Go backwards and 30 years ago roughly speaking the median price might be $62,500, even if you paid double then ($125,000) you would of been an idiot and could of better used your money but come today it is worth $500,000 so it became a good investment yes? Could it have been better of course but I would be glad to make $375,000 over 30 years than $303,408 at 3% compounding interest (using the same amount).

Of course if you leverage your $125,000 and bought 5 houses for the median price of $62,500 having a 60ish% LVR then in 30 years you would have 2.5M in assets and without paying down any principal would have ~$200,000 and be about 2M+ better off than paying the $125,000 into a compounding interest.

No one has a crystal ball to predict the future however history is the best indication and the saying goes history always repeats itself.
 
Over the past 100 years property has outperformed inflation by about 2%.

When you look at the raw data it is amazing how consistent it is. There have been some decades when it has done a bit less and some a bit more. But over the long term, very consistent.

Looking forward the next 100 years I believe this will continue. But of course anything can happen, and usually does.

This one - five-bedroom house, 243m2 on 968m2 of land - hasn't http://www.propertyobserver.com.au/f...5-million.html - Glenelg, $750K to $1.195m in 14 years (59%), 3.5% a year by my reckoning. From discussion at last weeks Melb meet, I would have thought this was a safe area to invest?
Click to expand...
Tony, that place in Glenelg was purchased in 2005, that was only 9 years ago, not 14.
 
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