Capital Gains over 100 years

[peastman]

Recently I have been having some conversations about how much real estate really appreciates.
There are the people saying property doubles every 7 to 10 years.
Others say it's no where near that, it's closer to 3%PA

So I have done some research.
Here is a link to page 15 The Argus 12/7/1913 (100 years ago)
http://trove.nla.gov.au/ndp/del/page/370134?zoomLevel=5
It shows many decent properties available for around 600-800 pound ($1200-$1600)
A perfect example would be the one in Elwood Beach.

"ELWOOD BEACH Choice new 7 room Villa. 50x130. minute tram. Rare chance 650 pound."

I feel it compares very well to something like this house advertised now for $1.4 mil.
http://www.realestate.com.au/property-house-vic-elwood-114087531

Obviously this place has been renovated, but in 1913 the example was for a new house, it compares rather well.

By my calculations that works out to a shade over 7%PA

 

[HotRod]

That's probably the best way to track the growth in the market.

Actually tracking the increase in value of a house or group of houses over time (I think Residex do that????).

So, 7% works about to be a doubling every 10 years.

But, you'll soon get the naysayers saying that's not right.

 

[knightm]

Great link peastman!

I like really long term stuff - I guess I like to remind myself that the big picture is the big picture. Lately I was pondering this graph and thinking it seems to represent roughly 6-7% cg and 4-5% yeild on both property and shares for total returns around 11% (ignoring leverage and active value add methods) since '26 (only 87yrs). If past inflationary trends and human behaviour is reasonably likely to predict future then this is a reasonable prediction to work from.

I dont really care what the naysayers say, I want to make my own decisions based on realistic evidence, these data points going back this far seem to be very valid to me.

Also reminds me not to worry about the whole property vs shares argument too much. They end up similar over the long term, if going to be active in the market my own ability and knowledge and courage are far bigger predictors of short term localised performance. So I need to ensure I am getting better at whatever I am doing all the time.

 

[devank]

That's probably the best way to track the growth in the market.

Can't we simply calcualte it from Land values alone?

 

[Deltaberry]

Naysayers will say what they want.

Reality is every country, Australia included, has weathered worser economic setbacks and have been in substantially worser positions.

Yet some truths remain and real estate trending up is one of them. Another truth is people who play around on exotic financial products typically end up no better off than where they started in the long run, except a select few.

 

[HotRod]

Can't we simply calcualte it from Land values alone?

Could do that do assuming that each built property has the same relative capitalisation for each end point.

 

[robbiejuve]

Yet some truths remain and real estate trending up is one of them.

Careful, the Americans were saying that until recently too and you know what happened when their market started going backwards.

 

[Bennny]

Sometimes when you buy a house, there is old documentation from the original subdivision that details how much the land originally sold for. On a couple that I've computed, it's usually around 7-8% pa.

The best ones come from farmers who held land on the urban fringe, then it gets rezoned into residential. One guy I know in Truganina purchased land 30 years ago, paid $18k for it. His friends and family told him he was brain-dead. Now that same land is worth around $10m.

23.45% pa compounded, unleveraged.

 

[HotRod]

Careful, the Americans were saying that until recently too and you know what happened when their market started going backwards.

Still holds true (property trending up over long term) if looking at 25/50/100 year periods.

If you look at 5/10 year periods a GFC will not help, that's barely 1/2 5-year property cycles.

Heard of the Great Depression on the 1930s?

The market still averaged 7% in the 100 years including that cataclysmic event.

I'd go out on a limb and say in 2035, looking back, the GFC of 2008 will just be another blip on the radar much like the Great Depression.

 

[Deltaberry]

Careful, the Americans were saying that until recently too and you know what happened when their market started going backwards.

Careful about what?

The market has bounced back in major cities like NYC. And it's been how many years since GFC? 5 to be exact from July 2008. Have another look at NYC prices in a few more years and let me know if they're higher in 2015 or in 2008.

 

[Bennny]

I'd go out on a limb at say in 2035, looking back, the GFC of 2008 will just be another blip on the radar much like the Great Depression.

Totally agree.

I once heard somebody say "When we're in a boom, everyone thinks it won't end. When we're in a recession, everyone thinks it won't end".

 

[Aaron Sice]

land values traditionaly doubled every 7 to 10 years because of inflation.

the growth appreciated in value as per regular cycles but inflation not only added to the price but ALSO eroded the debt value.

so it was like a wedge, driven right in between values paid and debt against.

that's the reason for the "old saying".

now, in a low inflation environment, this will take longer.

in a deflationary environment, the debt against the property gets larger and the value reduces.

 

[Archer]

I think to get an accurate figure you would also have to factor in all the maintenance/repair/replacement costs of the property over the period and also allow for all the fixed costs such as rates, insurances etc. I'm betting that this would shave a % or 2 off the annual compound growth.

 

[geoffw]

I think to get an accurate figure you would also have to factor in all the maintenance/repair/replacement costs of the property over the period and also allow for all the fixed costs such as rates, insurances etc. I'm betting that this would shave a % or 2 off the annual compound growth.

If you were to do that you perhaps should also be including rent

 

[matto_]

Direct comparison is the only real easy to calculate.

Long term median growth rates are affected by changes in characteristics of homes. Eg many country areas have newly built houses which are much more expensive and impact the value. Hence not comparing apples with apples.

 

[peastman]

land values traditionaly doubled every 7 to 10 years because of inflation.

According to the RBA's inflation calculator, the average inflation rate over the last 100 years is 4.1%
http://www.rba.gov.au/calculator/annualPreDecimal.html
Property appears to have consistantly done better than that.