House Prices doubling every 7 to 10 years
- Thread starter lowell
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I once read that the UK is the only country in the world that have 900+ years of records of land price. By memory the average growth was something like 10.2 pa. I guess that a lot of thing had happened in almost a millenium
War, boom, bust, pandemics, you name it and still people need a place to live. Will that ever change? I bought this house I'm sitting in now, 40 years ago. I had never heard the term "median" then but this house would have been, I assume.
It certainly isn't now. If I were to knock it down and build a new "median" home (you know, four bedroom, ensuite, his'n'hers vanities) there would be very little profit left in the deal assuming the base cost of 10 grand as the cost of the land. Had I been willing to buy a vacant block and sit on it I would have made the same dollar gain but from a much lower base ergo a marginal deal would become profitable.
I don't know the Syd market but maybe a 3br, 1bth br vn in the mid-west has maintained it's status as close to median but I'm sure bucket loads of repairs have been done on it in the meantime.
You never have to repair rising damp on your BHP shares.
Lowell,
The 'doubling every 7 - 10 years' thing is usually a line trotted out by people wanting to flog you an investment property. And it's easy to do a graph or something that proves median prices have done this. But it doesn't mean a particular property you buy will double in 7-10 years. It could, of course, and many properties did double (and more) during the recent boom. But I don't think anybody is expecting that to happen again any time soon - I have a sneaking suspicion that my PPOR that I bought for $1m in 02 is not going to be worth $2m next year.
Scott
The 'doubling every 7 - 10 years' thing is usually a line trotted out by people wanting to flog you an investment property. And it's easy to do a graph or something that proves median prices have done this. But it doesn't mean a particular property you buy will double in 7-10 years. It could, of course, and many properties did double (and more) during the recent boom. But I don't think anybody is expecting that to happen again any time soon - I have a sneaking suspicion that my PPOR that I bought for $1m in 02 is not going to be worth $2m next year.
Scott
Its a long term average and as mentioned each individual property will do better or worse in a given time frame. A western Sydney home purchased in 03 at the height of the boom may take more than 10 years to double, the same property purchase back in the late nineties would have doubled in much less time. The cycle is a bit elastic.
gees Scott that's underperformance! the one I bought in 02 for $650k is now worth $2m. can't really think fo a property that i have that hasn't at least doubled in that time.
question is... $2m invested is way higher than the cost of renting. am i brave enough to sell and rent back?
Have a look at this link - Shadow has kindly shown the median house prices of Sydney since 1970. As he points out, there is no reliable data pre 1970, so if you want to come to a conclusion based on only 38yrs of data, thats up to you.
http://www.somersoft.com/forums/showthread.php?t=44431&highlight=shadow+median+house+price
Even if your data is collected over hundreds of years, there is still no reliability because there are too many changing factors. For example social changes - how family members living together. Economic changes - dual incomes.
The point is, property is not an exact science.. so take anyones predictions or this rule of thumb "property prices double every 7yrs" with lots of salt.
http://www.somersoft.com/forums/showthread.php?t=44431&highlight=shadow+median+house+price
Even if your data is collected over hundreds of years, there is still no reliability because there are too many changing factors. For example social changes - how family members living together. Economic changes - dual incomes.
The point is, property is not an exact science.. so take anyones predictions or this rule of thumb "property prices double every 7yrs" with lots of salt.
I suspect you don't own any Sydney. Your boom was a tad after ours. But looking on the bright side, over here in the poor part of the country we've already had a fair bit of sobering up after the boom party.
I once read that the UK is the only country in the world that have 900+ years of records of land price. By memory the average growth was something like 10.2 pa. I guess that a lot of thing had happened in almost a millenium
If land prices were ($1), 900 years ago, and doubled every 10 years, the cost of land would be.
1497293092594469000000000000.00. Yep All those zeros are dollars.
If at 10.2%
91925301760630160000000000000000000000.00
Clearly that is not correct.
House prices have only doubled every 7-10 years for the last 30-40 years. During the period until the early 90's, there was high inflation, and they didn't double in "real terms". It's only been in the last 15 or so years, where house prices have massively increased in a low inflation environment have house prices increased in real terms, The main reason was ease of credit.
It happened worldwide, and it's unravelling as we speak.
See if first home buyers can pay 5.6 million dollars for a FHB house(todays 350,000) house in 40 years, when their wage is only 200-300 thousand.
Many people don’t understand compound interest, and the exponential function.
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You never have to repair rising damp on your BHP shares.
hope your dividend yield has made up for the 50% capital loss.
900 years ago you wouldn't pay $1,900 for a medium block of land. actually most of the land was under a heriditary system and very very few people actually owned land or bought it ... however, for a medium block of land was for sale you might have paid a few pennies.
$1,900 would've bought you a medium block around 40 years ago.
Kudos for this post Martin. Another myth about property that we have come to accept as gospel. People have mentioned in the past about the median house today is not the same median house that was built in 1970 or any other decade.
In recent times what has added to the price appreciation is the rarity factor caused by councils planning laws. This combined with the conflict of interest of council valuations and the userous land tax imposts imposed by our stand and deliver bandit state governments has resulted in the present over-inflated values.
When you consider the land area of Australia, the self serving pressure cooker market that has been created in our cities is just madness.
It sounds like I am one of the loony anti-property lefties that want the government to own everything for the good of society
We all need to be hard headed property investors who constantly questions our core belief's.Sometimes that means listening and learning from the property knockers or the dark side if you like.
OMG, not this debate again. Oi
You never have to repair rising damp on your BHP shares.
True, but then again, you wouldn't need to worry about a 50%+ drop in value in 6 months
You guys are too aggressive in your defense of property as the ultimate investment class. Your beligerence prevents you from cooly analising the changes happening, today.
I recommend that you put your dislike of NR and his message to one side long enough to listen to the message he, TC and I are trying to get across: That just as the stock market is no longer trading on fundamentals, property can act the same. In fact if sentiment continues to turn as it is doing now, there will a rout in property of equal percentages to BHP. If you are geared up you will be in deep dodo.
Did Glen Stevens' plea to Australia not to talk down our economy for fear it will be self-fulfilling, worry you? It did me. The sceptic in me always doubts what "insiders" tell us. A desperate act by a desperate man.
Don't shoot me, I'm just the messenger.
I recommend that you put your dislike of NR and his message to one side long enough to listen to the message he, TC and I are trying to get across: That just as the stock market is no longer trading on fundamentals, property can act the same. In fact if sentiment continues to turn as it is doing now, there will a rout in property of equal percentages to BHP. If you are geared up you will be in deep dodo.
Did Glen Stevens' plea to Australia not to talk down our economy for fear it will be self-fulfilling, worry you? It did me. The sceptic in me always doubts what "insiders" tell us. A desperate act by a desperate man.
Don't shoot me, I'm just the messenger.
"can" act the same? You mean, has been acting the same. the current crash in the market is the product of a bubble that led to overinflated valuations. when bubbles pop they tend to cause a lot of collateral damage--its no longer simply a matter of sentiment where thinking happy thoughts will turn things around.
Property is the same. it has been acting irrationally for several years, it is not trading on fundamentals. the overdue correction will bring things back into line with historical averages but, as is usually the case with bubble implosions, will cause a lot of collateral damage on the way down--harming what would otherwise be healthy assets.
if you have a lot of money sitting in a pile in your bedroom and have a long investment horizon, this time next year should represent a wonderful buying opportunity.
Though the magnitude of long term CG over time can be at large, location specific. It can however, be attributed to the long term creative genious of councils and government bi-laws, restructuring of land parcels and allowances towards multi lot zoning. This has and will continue to play an important part in value adding to many existing properties now and in the future.
Rezoning can,and has doubled property values over night.
I believe future rezoning of existing areas will be a price driver for future CG.
Doubling CG in less than 7 years.....definately. But not all properties in general.
